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Title: LOAN RECEIVABLE
Description: In-depth discussion of Loans receivable complexity simplified by concept-map based discussion with step-by-step solution.
Description: In-depth discussion of Loans receivable complexity simplified by concept-map based discussion with step-by-step solution.
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LOAN RECEIVABLE
LOANS RECEIVABLE: Initial Measurement
Face Value of a note is also called
the principal
...
Direct Origination Cost are
directly attributable costs
incurred by the lender to process
Origination
Fees are fees charged
a loan
...
Face Value
Add: Direct Origination Cost
Loss: Origination Fee
Initial Carrying Value
LOANS RECEIVABLE: Amortized Cost
Unearned Interest Income
Direct Origination Cost > Origination Fee = Premium
Direct Origination Cost < Origination Fee = Discount
Unearned Interest Income (Premium or Discount)
is amortized over the term of the loan
...
(Revisit the discussion in Notes Receivable on how Amortization Table works)
ILLUSTRATION: LOANS RECEIVABLE
PROBLEM:
During the beginning of the year 2024, Joshua granted Jericho a 4-year loan amounting to Php 2,500,000, with nominal interest
rate of 10% payable every December 31
...
Notice that the problem only gave the Nominal Interest Rate while the Effective Interest Rate is unknown
...
Computation of New Effective Interest Rate:
STEP 1:
STEP 2:
Compute the Initial Carrying Value
Get the LOWER RATE
Interpolation is a “Trial-and-error” process
...
This amount is greater than the Initial
Carrying Value of Php 2,430,000 by 150,925
...
Let’s try to get the higher rate by using 11%
Php 2,422,350 is the Present Value if the Effective
rate is 11%
...
STEP 4:
Compute the Exact Effective Interest Rate
The difference is 150,925
...
Total Gap difference is 158,575
...
90%
PROBLEM:
During the beginning of the year 2024, Joshua granted Jericho a 4-year loan amounting to Php 2,500,000, with nominal interest
rate of 10% payable every December 31
...
Computed Initial Measurement of the Loans Receivable is: Php 2,430,000
Computed Effective Interest Rate is: 10
...
NONCURRENT PORTION OF LOANS RECEIVABLE:
The entire Php 2,500,000 is noncurrent because it will be
collected at the end of 4th year
Title: LOAN RECEIVABLE
Description: In-depth discussion of Loans receivable complexity simplified by concept-map based discussion with step-by-step solution.
Description: In-depth discussion of Loans receivable complexity simplified by concept-map based discussion with step-by-step solution.