Asked by Abder-rahmane Cisse on Apr 28, 2024
Verified
Which of the following is not an acceptable measure of the impairment of a note receivable?
A) the difference between the present value of the note using the contract interest rate and the carrying value of the note
B) the difference between the note's market value and its carrying value
C) the difference between the fair market value of the note's collateral and the note's carrying value
D) the difference between the note's maturity value and its carrying value
Market Value
The present rate at which a service or asset is available for purchase or sale on the open market.
Present Value
Present Value is a financial concept that calculates the current worth of a future sum of money or stream of cash flows given a specified rate of return.
Contract Interest Rate
The interest rate specified in a loan or bond agreement, representing the cost of borrowing or the rate of return promised to lenders.
- Explore the recognition and measurement considerations of impaired loans and notes receivable.
Verified Answer
DS
dhruv sonavaneApr 30, 2024
Final Answer :
D
Explanation :
The maturity value of a note receivable is not a relevant measure of impairment. The impairment should be measured by the present value of cash flows expected to be collected, which can be determined by comparing the carrying value of the note to the present value of expected future cash flows using the effective interest rate, or by comparing the fair value of the note to its carrying value. The value of collateral may also be considered in determining impairment.
Learning Objectives
- Explore the recognition and measurement considerations of impaired loans and notes receivable.