CHAPTER 21 LOAN RECEIVABLE Problem 21-1 (IFRS) Empress Bank granted a loan to a borrower on January 1. 2023. The interest rate on the loan is 10% payable annually starting December 3 1, 2023. The loan matures in five years on December 31, 2027. Principal amount 5,000,000, Origination fee received from borrower 200,000 Direct origination cost incurred 457,500 The effective rate on the loan after considering the direct origination cost incurred and origination fee received is 8%. Ie Bo is the carrying amount of the loan receivable on January 1, 2023? a. 5,000,000 b. 4,800,000 c. 4,542,500 d. 5,257,500 What amount should be recognized as interest income for 2023? a. 500,000 b. 400,000 c. 579,400 d. 420,600 3. Whatis the carry 31, 20237 "78 Mount of the loan receivable on December a. 5,000,000 b. 5,178,100 ©. 4,821,900 d. 5,092'348 260solution 21-1 question I Answer d origination fee received ion fee 200,000 pirect origination cost 457,500 Netdirect origination cost 257,500 Note receivable 5,000,000 Net direct origination cost 257,500 Canying amount — January 1, 2023 5,257,500 The origination fee may be charged against the borrower. If not, the origination fee is known as direct origination cost. The origination fee received from the borrower is recognized as uneamed interest income to be amortized over the term of the loan. ‘The direct origination cost is a deferred charge and also amortized over the term of the loan. Preferably, the two are offset against the other. Question 2 Answer d Interest income for 2023 (5,257,500 x 8%) Journal entries on December 31, 2023 Cash (10% x 5,000,000) 500,000 Interest income 500,000 Interest income 79,400 Direct origination cost 79,400 Interest income 420,600 Interest received 500,000 Amortization of direct origination cost Question 3 Answer b Loan receivable 5,000,000 "rect origination cost — December 31, 2023 (257,500 - 79,400) 278,100, Canying amount - December 31, 2023 5,178,100 261Problem 21-3 (IFRS) Philippine Bank granted a loan to a borrower on January 1,20, The interest on the loan is 8% payable annually starting Decem) 31, 2023. The loan matures in three years on December 3], 2095 Principal amount 3,000,009 Origination fee charged against the borrower 100,009 Direct origination cost incurred 260,309 After considering the origination fee charged to the borrower anj the direct origination cost incurred, the effective rate on the loans 6%. 1. Whatis the carrying amount ofthe loan receivable on January|, 20237 a. 3,160,300 b. 3,260,300 ¢. 2,900,000 d. 3,000,000 2. What amount should be recognized as interest income for 2023? a. 240.000 b. 189,618 c. 252,824 d. 180,000 3. Whats the carrying amount of the loan receivable on December 31, 2023? a. 3,000,000 b. 3,160,300 c. 3,109,918 d. 3,210,682 4, What amount should be recognized as interest income for 2024” a. 240,000 b. 180,000 c. 248,793 d. 186,595 264solution 21-3 Question 1 Answer a Direct origination cost incurred Origination fee received Net direct origination cost Loan receivable Crying amount of loan receivable ~ January 1, 2023 Question 2 Answer b Interest income for 2023 (6% x 3,160,300) Interest received for 2023 (8% x 3,000,000) Amortization of direct origination cost Question 3 Answer ¢ Loan receivable Direct origination cost — December 31, 2023 Carrying amount — December 31, 2023 Diret origination cost — January 1, 2023 mortization for 2023 Distt origination cost - December 31, 2023, Question 4 Answer d Interest income for 2024 (6% x 3,109,918) 265 260,300 (_ 100,000) 160,300 3,000,000 3,160,300 189,618 240,000 50,382 3,000,000 109.918 3,109,918 160,300 (50,382) 109,918 186,595,CHAPTER 22 IMPAIRMENT OF LOAN Problem 22-1 (IAA) World Bank loaned P9,000,000 to a borrower on January 1,207, The terms of the loan were payment in full on December 31, 297 plus annual interest payment at 12%. The interest payment was maj Pius sieduled on, December 31, 2023. However, due to financial Setbacks, the borrower was unable to make the 2024 interest paymen, red and projected the cash flows The bank accrued the interes ted cash flows are: Amount projected The bank considered the loan impai from the loan on December 31, 2024. on December 31, 2024. The projec Date of cash flow ‘on December 31, 2024 December 31, 2025 , December 31, 2026 2,000,000 December 31, 2027 2,500,000 December 31, 2028 3,000,000 The PY of | at 12% is 0.89 for one period, 0.80 for two periods, 0.71 fer three periods, and 0.64 for four periods. 1. What amount should be reported as loan impairment loss for: 2024 a. 3,450,000 b. 2,370,000 ¢. 6,630,000 d, 2,450,000 2. What amount should be reported as interest income for 2024? a. 795,600 b. 900,000 c. 180,000 d 0 3. What is the carryii i be Wht i he carying amount of the loan receivable on Decem! a. 4,845,000 b. 5,925,600 c. 6,330,000 d. 7,500,000 268solution 22-1 Question | Answer a pecember 31, 2025 (1,500,000 x.89) 1,335,000 December 31, 2026 (2,000,000 x 80) 1%600,000 December 31, 2027 (2,500,000 x.71) 1,775,000 December 31, 2028 (3,000,000 x .64) 1,920,000 Total present value of cash flows 6,630,000 Loan receivable 9,000,000 Accrued interest receivable (9,000,000 x 12%) 1,080,000 Carrying amount 10,080,000 Present value of cash flows 6,630,000 Inpairment loss for 2024 3, Journal entry on December 31, 2024 Impairment loss 3,450,000 Accrued interest receivable 1,080,000 Allowance for loan impairment 2,370,000 The impairment loss is P3,450,000 but the allowance for loan impairment is credited only for P2,375,000 net of the accrued interest of P1 080,000. Tre impairment loss on Joan receivable is measured as the difference ‘nthe carrying amount of loan receivable and the present value ofcash lows using the original effective rate, Question 2 Answer b Interest income for 2025 (6,630,000 x 12%) 295,600 Question 3 Answer b Journal entries on December 31, 2025 Cash 1,500,000 Loan receivable 1,500,000 Allowan aoa 795,600 terest 088 impairment 795,600 Loan 7,500,000 "ceivable '9,000,000— 1,500,000) 1,500, cumace for loan impairment (570,000 795,600) (1,574,400) “Ying amount ~ December 31, 2025 £925,600 269Problem 22-2 (IAA) Kalibo Bank loaned P5,000,000 to Caticlan Company on Jan 1, 2023. The terms of the loan require principal paynicnts of _ P1,000,000 each year for 5 years plus interest at 8%, The first principal and interest payment is due on January 1, 294 Caticlan Company made the required payments during 2024 ang 2025. However, during 2025 Caticlan Company began to experience financial difficulties, requiring Kalibo Bank to reassess the collectiiliy ofthe loan. * OnDecember 31,2025, Kalibo Bank has determined that the remaining principal payment will be collected but the collection of the interests unlikely. Kalibo Bank did not accrue the interest on December31, 2025. Present value of | at 8%: For one period 0.93 For two periods 0.86 For three periods 0.79 “1. What amount should be reported as loan impairment loss for 2025? a. 410,000 b. 210,000 c. 220,000 d. 0 2. What amount should be reported as interest income for 2026? a, 207,200 b. 143,200 c. 240,000 a. 0 3. Whats the carrying amount of the loan receivable on Decembet 31, 2026? a. 2,000,000 b. 1,933,200 c. 1,590,000 d. 1,790,000 i 270olution 22-2 Question 1 Answer b january 1, 2026 collection (1,000,000 x 1,00 janvary 1,2027 collection (1,000,000 x 3 January 1,2028 collection (1,000,000x 86) otal present value of loan 1,000,000 930,000 Loan receivable 3,000,000 Present value of loan 2'790:000 Impairment loss for 2025 310,000 Journal entry to record the impairment loss Impairment loss 210,000 Allowance for loan impairment 210,000 Question 2 Answer b Loan receivable 3,000,000 Collection on January 1, 2026 (1,000,000) Loan receivable - January 1, 2026 2,000,000 Allowance for loan impairment (_210,000) Carrying amount — January 1, 2026 1,790,000 Interest income for 2026 (1,790,000 x 8%) Question 3 Answer b Loan receivable ~ December 31, 2026 2,000,000 Allowance for loan impairment — December 31,2026 (66,800) Carrying amount ~ December 31, 2026 1,933,200 Allowance for loan impairment - January 1, 2026 be Interest income for 2026 (143,200) Allowance for loan impairment ~ December 31, 2026 _66,800 271Problem 22-5 (IAA) On December 31, 2023, S 4,000,000 from a borrower and on the loan is payable at 9 The borrower paid the the bank that it woul payments. After that, the borr payment but it woul Interest paid for that % each December 31. id Bank has a loan receivaby, tig fue on December 31,2028, Inte interest due on December 31, 2023 but infor id probably miss the next two years inter! ‘ower is expected to resume the annual interes id make the principal payment one year late, wit additional year at the time of principal payment, The PV of 1 at 9% is .77 for three periods, .71 for four periods, .65 for five periods, and .60 for six periods. What amount should be reported as loan impairment loss for 2023) a. 617,200 b. 720,000 c. 360,000 d. 977,200 Solution 22-5 Answer a Schedule of cash flows December 31, 2024 December 31, 2025 December 31, 2026 December 31. 2027 December 31,2028 December 31. 2029 December 31, 2029 No interest payment No interest payment Interest payment (9% x 4,000,000) Interest payment Interest payment Interest payment Principal payment Present value of cash flows December 31, 2026 December 31. 2027 December 31, 2028 December 31, 2029 ( 360,000 x .77) ( 360,000 x..71) ( 360.000 x .65) (4,360,000 x .60) Total present value of cash flows Loan receivable Present value of cash flows Loan impairment loss for 2023 274 360,000 360,000 360,000 360,000 4,000,000 277,200 255,600 234.000 ssn 4,000,000 61 7,20 =problem 22-8 (IFRS) OnJanuary 1, 2023, Global Bank loaned P3,000,000 to a borrower witha 6-year term and 9% interest rate, inerestis payeble annuaily exray December 31 and the principal amount willbe collected on December 31, 2028. Interest is collected for 2023. On December 31, 2023, the bank determined that the loan has a 12-month probability of default of 10% and expected to collect only 2,700,000 of the loan. The present va'ue of 1 at 9% is 0.65 for 5 periods. OnDecember 31, 2024, the bank determined that there isa significant increase in the credit risk of the loan but no objective evidence of impairment é Based on relevant information, the bank concluded that there isa 30% obability of detault over the remaining term of the loan and it is pected that only P1,800,000 of the loan will be collected. Interest is collected for 2024. The present value of | at 9% is 0.71 four periods OnDecember 31,2025, the borrower was under financial difficulty andthe loan was considered impaired because there is now objective evidence of impairment. Thebank agreed that only P1,200,000 ofthe principal will be collected gus date. Interest is collected for 2025,The present velus of | at %is0.77 for three periods, The entity decid 2 ed to apply the three-stage approach of determining 'mpairment of loan. be| What amount should be recognized as impairment loss for 2, a. 1,755,000 b, 1,245,000 c. 124,500 d. 300,000 . What amount should be recognized as interest income for 2024) a. 270,000 b. 267,759 c. 223,506 d. 0 | What amount should be recognized as impairment loss for 2024? a. 1,722,000 b. 1,200,000 c. 392,100 d. 516,600 |. What amount should be recognized as impairment loss for 2025! a. 2,076,000 b. 1,559,400 c. 1,800,000 d. 0 What amount should be recognized as interest income for 2026” a. 270,000 b. 102,196 c. 90,644 d. 83,160 280solution 22-8 (Question J Answer c 2023 jn. | Loan receivable 3,000,000 Cash 3,000,000 pee, 31 Cash (3,000,000 x 9%) 270,000 Interest income 270,000 Impairment loss 124,500, Allowance for loan impairment 124,500 Carrying amount - December 31, 2023 3,000,000 present value of expected cash flow — December 31, 2023 (2,700,000 x 0.65) 1,755,000 Expected credit loss 1,245,000 Multiply by probability of default within 12months * 10% Impairment loss for 2023 124,500 Question 2 Answer a Interest income for 2024 (9% x 3,000,000) Question 3 Answer c 024 Dec. 31 Cash 270,000 Interest income 270,000 Impairment loss z 392,100 Allowamce for loan impairment 392,100 Canying amount - December 31, 2024 a 3,000,000 value of expected cash flow —December 31, ‘onto (1,800,000 x 0.71) ‘ iapeted credit loss a6 : ae ukiply by probability of default within 4 years me 516, ‘equired loss allowance - December 31, 2024 4,500) Unadjusted allowance - December 31, 2023 a I"psimment loss for 2024 — 281Question 4. Answer b be 270,000 Dec. 31 Cash . Interest income 270,009 5 1,559,400 t loss : 559, tmpat rowrance for loan impairment 1,559.40) ‘Allowance for loan impairment 1,800,000 Loan receivable Carrying amount ~ December 31, 2025 Present value of expected cash flow ~ December 31, 2025 (1,200,000 x 77) Expected lifetime credit loss Unadjusted allowance - December 31, 2024 Impairment loss for 2025 Question 5 Answer d Loanreceivable (3,000,000 -1,800,000) 1.200,000 Allowance for loan impairment (2,076,000 - 1,800,000) (_276,00) Net carrying amount - December 31, 2025 924,009 Carrying amount ~ December 31, 2025 924,000 Interest income for 2026 (9% x 924,000) 83.160 Carrying amount - December 31, 2026 1,007,160 Interest income for 2027 (9% x 1,007,160) 90,644 Carrying amount — December 31, 2027 1,097,804 Interest income for 2028 (balancing — rounded) 102,196 Carrying amount — December 31, 2028 1,200,000 2026 Dec. 31 Allowance for loan impairment 83,160 Interest income $3,160 2027 Dec. 31 Allowance for loan impairment 90,644 Interest income 90,64 2028 Dec. 31 Allowance for loan impairment 102,196 Interest income 102.198 31 Cash 200,000 Loan receivable —— 1,200,000 282 Eel