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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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