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Receivables - Additional Concepts Credit Impaired Financial Assets

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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finn mertens
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235 views

Receivables - Additional Concepts Credit Impaired Financial Assets

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.

Uploaded by

finn mertens
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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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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