Scribd Logo
Upload

Welcome to Scribd!

  • 19 views

    Measurement of Impairment

    Uploaded by

    krisha millo
    The document discusses the measurement and accounting for impairment of notes receivable and loans. Impairment loss is calculated as the difference between the carrying amount and present value of future cash flows using the original effective interest rate. Two illustrations are provided showing the calculation of impairment loss for restructured notes receivable and loans where future cash flows have been impacted. The impairment loss is recognized through an allowance for credit losses account with an offset to bad debt expense.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Measurement of Impairment

    Uploaded by

    krisha millo
    19 views6 pages
    The document discusses the measurement and accounting for impairment of notes receivable and loans. Impairment loss is calculated as the difference between the carrying amount and present value of future cash flows using the original effective interest rate. Two illustrations are provided showing the calculation of impairment loss for restructured notes receivable and loans where future cash flows have been impacted. The impairment loss is recognized through an allowance for credit losses account with an offset to bad debt expense.

    Original Title

    IMPAIRMENT

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses the measurement and accounting for impairment of notes receivable and loans. Impairment loss is calculated as the difference between the carrying amount and present value of future cash flows using the original effective interest rate. Two illustrations are provided showing the calculation of impairment loss for restructured notes receivable and loans where future cash flows have been impacted. The impairment loss is recognized through an allowance for credit losses account with an offset to bad debt expense.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    19 views6 pages

    Measurement of Impairment

    Uploaded by

    krisha millo
    The document discusses the measurement and accounting for impairment of notes receivable and loans. Impairment loss is calculated as the difference between the carrying amount and present value of future cash flows using the original effective interest rate. Two illustrations are provided showing the calculation of impairment loss for restructured notes receivable and loans where future cash flows have been impacted. The impairment loss is recognized through an allowance for credit losses account with an offset to bad debt expense.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    IMPAIRMENT

    Measurement of Impairment
    Impairment loss is the difference between:

     The carrying amount Amortized + Accrued Interest of the NR or LR

     The present value of future cash flows using the Original effective rate

    Amortized cost is the amount equal to:


    Initial measurement of NR
    Less: Principal payment
    Add: Amortization of Discount/Unearned Interest Income
    Less: Amortization of Premium/Direct Origination Cost
    Less: Reduction for Impairment

    Illustration #1
    On Dec.31, 2019, COVID Company has a note receivable from PINOY Corporation
    that is due on said date. However, PINOY Corporation is experiencing financial
    distress due to the effect of the pandemic on its business operations and has
    negotiated for restructuring. The note has a face amount of P4,000,000 and has
    accrued interest of P480,000, based on interest rate of 12% Original terms)

    The restructuring calls for P1,120,000 annual payment starting Dec. 31. 2020. No
    further interest will be collected. The note receivable has a related allowance for
    uncollectible notes of P100,000

    A Get the carrying amount of note:

    IMPAIRMENT 1
    B Get the PV of the future cash flows:

    C Get the difference between A and B


    CA 4,380,000
    PV 3,401,776
    Impairment 978,224

    Accounting for Impairment

    The entry to be recorded on 12/31/2019 is:

    IMPAIRMENT 2
    NOTE
    Restructed Notes Receivable is the same with NRNew

    Notes receivable is the same with NROld

    Amortized cost at year-end: a

    Amortization of Discount

    IMPAIRMENT 3
    Illustration #2

    On Jan. 1, 2017, COVID Bank granted a P10,000,000 loan to PINOY Corporation.


    The terms of the loan state an annual P2,000,000 payment plus 8% interest for 5
    years starting Dec.31, 2017. PINOY was able to comply in 2017 and 2018.

    However, during 2019, PINOY experienced financial difficulties because of


    corruption and embezzlement by its president.

    On December 31, 2019, COVID Bank has assessed that the remaining principal
    payments will be collected but the collection of interest is unlikely. The inflow of
    principal payments will be: 12/31/20 - 1M,

    12/31/21 - 2M, 12/31/22 - 3M.

    A Get the carrying amount of note:

    B Get the PV of the future cash flows:

    IMPAIRMENT 4
    C Get the difference between A and B

    CA 6,380,00

    PV 5,021,900

    Impairment 1,458,100

    Accounting for Impairment

    The entry to be recorded on 12/31/2019 is:

    Amortization of Allowance:

    Amortized cost at year-end:

    IMPAIRMENT 5
    IMPAIRMENT 6

    You might also like