Discount or premium on a note receivable

A note discount or premium is the difference between the note's face amount and its initial present-value-based carrying amount. The difference reflects the relationship among contractual cash flows, transaction price, and the supported effective yield.

Measure the note from its cash flows

Assume a zero-coupon note pays $121,000 in two years and the supported annual yield is 10 percent:

Present value = $121,000 ÷ 1.10² = $100,000
Discount = $121,000 − $100,000 = $21,000

The lender initially records the note at $100,000 under the bounded facts, then accretes the $21,000 discount as interest revenue over two years. A premium would reduce interest revenue relative to cash under the same method.

Keep face, carrying amount, and allowance separate

Face amount is the contractual maturity claim. Carrying amount reflects present-value measurement and later amortization. The credit-loss allowance is a separate estimate of expected cash shortfalls. None of these amounts can replace the others.

Boundary and source

The calculation assumes the cash flows, exchange price, and yield are supported. It does not determine whether a note arose from goods, services, financing, or a modification. Read ASC 835-30-25-8 for present-value measurement and ASC 835-30-25-9 for the resulting discount or premium.