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    Receivables - Additional Concepts Credit Impaired Financial Assets

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    finn mertens
    The document discusses a loan made by ABC Bank to XYZ Inc. that was later deemed credit impaired. It provides cash flow projections for the loan and calculates the impairment loss on the loan as of December 31, 20x2 to be P499,716. It also calculates the interest income that would be recognized in 20x3 from the loan to be P282,556.

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    Receivables - Additional Concepts Credit Impaired Financial Assets

    Uploaded by

    finn mertens
    199 views2 pages
    The document discusses a loan made by ABC Bank to XYZ Inc. that was later deemed credit impaired. It provides cash flow projections for the loan and calculates the impairment loss on the loan as of December 31, 20x2 to be P499,716. It also calculates the interest income that would be recognized in 20x3 from the loan to be P282,556.

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    INTERM1

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    The document discusses a loan made by ABC Bank to XYZ Inc. that was later deemed credit impaired. It provides cash flow projections for the loan and calculates the impairment loss on the loan as of December 31, 20x2 to be P499,716. It also calculates the interest income that would be recognized in 20x3 from the loan to be P282,556.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    199 views2 pages

    Receivables - Additional Concepts Credit Impaired Financial Assets

    Uploaded by

    finn mertens
    The document discusses a loan made by ABC Bank to XYZ Inc. that was later deemed credit impaired. It provides cash flow projections for the loan and calculates the impairment loss on the loan as of December 31, 20x2 to be P499,716. It also calculates the interest income that would be recognized in 20x3 from the loan to be P282,556.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Receivables - Additional Concepts

    Credit Impaired Financial Assets


    On January 1, 20x1, ABC Bank extended a 12%, 4-year P4,000,000 loan to XYZ, Inc.  
    ABC Bank incurred direct origination costs of P364,098.  ABC charged XYZ, Inc. 6%
    service charge.  The effective interest rate on the loan is 11%.

    On December 31, 20x2, ABC Bank assesses that the loan is credit impaired.  All
    interests on the loan are settled.  However, ABC Bank expects that future interests will
    not be collected.  ABC Bank makes the following cash flow projections from the loan.

    January 1, 20x3 P1,000,000


    January 1, 20x4 P1,500,000
    January 1, 20x5 P1,500,000

    The current rate of interest on December 31, 20x2 is 12%

    Date Cash Flows PV of 1 @11% PV factors Present Value

    January 1, 20x3 P1,000,000 n=0 0.9009009 1,000,000

    January 1, 20x4 P1,500,000 n=1 0.8116224 1,351,351

    January 1, 20x5 P1,500,000 n=2 0.7311913 1,217,434

    3,568,785

    Requirements:
    A. How much is the impairment loss on December 31, 20x2?

    Principal amount 4,000,000


    Direct origination cost 364,098
    Origination fees (240,000)
    Carrying amount before impairment 4,124,098

    Present value of estimated future cash flows 3,568,785


    Carrying amount before impairment (4,068,501)
    Impairment Loss   (499,716)
    Date Collection Interest Amortizatio Present Value
    s Income  n
    January 1, 20x1 4,124,098
    December 31, 480,000 453,651 26,349 4,097,749
    20x1

    December 31, 480,000 450,752 29,248 4,068,501


    20x2

    B. How much is the interest income in 20x3?

    Present value of estimated future cash flow 3,568,785


    Less: Cash flow (January 1, 20x3) (1,000,000)
    Multiply by             11%
    Interest Income  282,556

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