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Title: Impairment of Receivables
Description: Extensive discussion on how Impairment of Receivables work. Concept-map based discussion of how to solve impairment and important details to remember whenever solving.
Description: Extensive discussion on how Impairment of Receivables work. Concept-map based discussion of how to solve impairment and important details to remember whenever solving.
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IMPAIRMENT
OF
LOAN RECEIVABLE
IMPAIRMENT OF RECEIVABLE
Borrower is experiencing financial difficulty
...
PFRS 9 paragraph 5
...
2
an entity shall assess at every end of reporting
period whether there is objective evidence that a
financial asset or group of financial assets is
impaired
...
Use the ORIGINAL EFFECTIVE RATE
Effective Interest rate at the time the loan originated,
not the Effective Interest rate at the time of impairment
...
In other words, add Accrued Interest if
recorded by the company
...
ILLUSTRATION: If Nominal Interest rate = Effective Interest rate
PROBLEM:
On January 01, 2024, Makapuno Co
...
a 4-year loan amounting to Php 2,500,000
...
The interest is collectible every end of the year
...
assessed the loan that it is impaired
...
Makapuno Co
...
SOLUTION:
2,750,000
2,066,000
jd
684,000
Makapuno Co
...
The Accrued interest is computed as follows (2,500,000 x 10%)
...
PV of Expected future cash flows (2,500,000 x 0
...
The 4-year loan starting January 01, 2024, will end on December 31, 2027
...
(PV of 1 for 2 periods @ 10%)
...
ILLUSTRATION: If Nominal Interest rate = Effective Interest rate
PROBLEM:
ABC Corporation gave DEF Corporation a loan of 10%, 4-year, Php 5,500,000 loan at the beginning of the year 2024
...
ABC
Corporation assessed that the loan is impaired
...
No interest will be charged
...
SOLUTION:
This is a loan receivable, only the Nominal Interest Rate
was provided
...
Let’s try 11% first
...
This is a loan receivable, only the Nominal Interest Rate
was provided
...
Let’s try 12%
...
Since 12% Effective Interest Rate is
greater than the 10% Nominal Interest Rate, the Loan is said to be
DISCOUNTED
...
What is the Carrying amount of the loan on December 31, 2024 before Impairment?
The Carrying amount of the loan on December 31, 2024, is
Php 5,235,657
...
What is the Carrying amount of the loan on December 31, 2024, for Impairment?
The Interest collection during December 31, 2024 is 550,000
computed as (5,500,000 x 10%)
...
What is the Present Value of Expected future cash flows?
Use the Effective interest rate of 12% to compute for the
Present Value Factor for each year
...
The problem states that “both
companies agreed that the principal amount will be paid in
4 equal instalments
...
What is the Impairment Loss on Loans Receivable?
ABC Corporation should receive Php 5,785,657 but because
of impairment, the entity will only receive 4,176,425
resulting to Loss on Impairment of Php 1,609,232
...
Use the Original Effective Interest Rate we
computed through interpolation and ignore the 14%
New Effective Interest Rate provided in the problem
...
Title: Impairment of Receivables
Description: Extensive discussion on how Impairment of Receivables work. Concept-map based discussion of how to solve impairment and important details to remember whenever solving.
Description: Extensive discussion on how Impairment of Receivables work. Concept-map based discussion of how to solve impairment and important details to remember whenever solving.