Suppose you have been hired by company XYZ to serve as a consultant who must exp

Question

Suppose you have been hired by company XYZ to serve as a consultant who must explain the accounting treatment for notes receivables. Outline a memo that explains the advantages and disadvantages of preparing notes receivables using the fair value method versus using the historical cost method. Also, recommend to management the method that would provide the greatest benefit to the company. Support your response with specific examples of the benefits that would be derived from the method that you recommend.

Explanation / Answer

notes receivables are the claims for which formal instruments of credit are issued as a proof of debt instrument and which has to claim in future.

as an account we need to maintain both the records which lists historical value and fair value of the isnstrument. the long term debt has to repay by the debtor with interest and capital repayment also.

but historical cost will be remain constant and it wont change regularly, but fair value will be changes regularly along with market conditions. so maintaining fair value is most suitable and difficult one also.

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