Generally Accepted Accounting Principles
in the United States

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Interest on Receivables and Payables
(APB Opinion No. 21)

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APB Opinion No. 21


Accounting Principles Board (APB) Opinion No. 21
        a.  Interest on Receivables and Payables
        b.  Issued in August 1971

Total amount of interest
           --> Difference between present value and face amount.
           --> Difference between the amount received and the amount to be repaid.

Discount
           --> Present value < Face amount
           --> Amount received < Amount to be repaid

Premium
           --> Present value > Face amount
           --> Amount received > Amount to be repaid

Discount and Premium
           --> Amortized over the life of note
           --> using Interest Method.

Presentation of Discount and Premium
           --> Deducted from or added to the face amount of note.
           --> Not reported as a separate asset or liability.

 Present Value of a note exchanged for cash
           --> Cash proceeds.

Present Value of a note exchanged for property, goods, or services
           --> Fair value of property, goods, or services
                 or
                 Market value of the note

           --> whichever is more clearly determinable.

Rules of APB Opinion No. 21 do NOT apply to the following:
           --> a.  Receivables and payables due within one year
                      (from normal course of business)
                 b.  Amounts that do not require repayment
                      (applied to the purchase price of assets)
                      (e.g., deposits, advance payments, progress payments)
                 c.  Security deposits
                 d.  Customary cash lending of financial companies
                 e.  Interest rates affected by tax rules or restricted by government agency
                 f.  Between parent and subsidiaries, between subsidiaries transactions

 Present Value of Notes Receivable
           --> Examples


 Accounting for Bonds Payable
           --> Examples









 
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Inventory Valuation Methods
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