Question

In: Accounting

Solid bank loan P5 million to a borrower on January 1, 2018. The terms of the...

Solid bank loan P5 million to a borrower on January 1, 2018. The terms of the loan require principal payments of P1 million each year for five years plus interest at 8%.

The first principal and interest payment is due on January 1, 2019. The borrower made the required payments during 2019 and 2020. However, during 2020 the borrower began to experience financial difficulties, requiring the bank to reassess the collectibility of the loan.

On December 31, 2020, the bank has determined that this remaining principal will be collected as originally scheduled but the collection of the interest is unlikely. The bank did not accrue the interest on December 31, 2020.

PV Factor of an ordinary annuity 1 @ 8% for 1 period: 0.926

PV Factor of an ordinary annuity 1 @ 8% for 2 periods: 0.857

What is the impairment loss for 2020?

What is the carrying amount of the loan receivable on December 31, 2021?

Solutions

Expert Solution

1)Impairement Loss for 2020 is P456720

2) Carrying Amount as on 31 December 2020 is P292600

Original Payment Schedule:
Year Principal Amount Interest @ 8% Loan outstanding
Jan'2018 5000000
Jan'2019 1000000 400000 4000000
Jan'2020 1000000 320000 3000000
Jan'2021 1000000 240000 2000000
Jan'2022 1000000 160000 1000000
Jan'2023 1000000 80000 0
After considering reassessment of collectibility of loan
Impairment Loss: Total Interest not collectible
Year Interest Amount PV Factor Present value
Jan'2021 240000 1 240000
Jan'2022 160000 0.926 148160
Jan'2023 80000 0.857 68560
456720
Carrying Amount: Present value of outstanding Loan
Year Loan outstanding PV Factor Present value
Dec'2021 200000 1 200000
Dec'2022 100000 0.926 92600
292600

ekkarill92 answered 1 year ago
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