CHAPTER 12:

LOANS RECEIVABLE
Financial asset arising from a loan granted by a
bank or other financial institution to a borrower
or client
May be short term; in most cases, the
repayment periods cover several years
EFFECTIVE RATE
 computed through the "trial and error"
and "interpolation approach"
 In practice, IT is easily determined
through the use of financial calculator.

INITIAL MEASUREMENT
Fair value (+) transaction costs that are directly EFFECTIVE INTEREST METHOD
attributable to the acquisition of financial asset
 Interest received = principal x nominal
Transaction price – amount of the loan rate
granted  Interest income = carrying amount x
effective rate
Direct organization cost – included in initial
measurement of the loan receivable
Indirect organization cost – treated as STATEMENT PRESENTATION
outright expense
 Carrying amount = amortized cost

SUBSEQUENT MEASUREMENT
IMPAIRMENT OF LOAN
Amortized cost – amount at which the loan
receivable is measured initially: Credit losses - present value of all cash
shortfalls
a) (-) principle repayment
b) (+,-) cumulative amortization of any Expected credit losses - estimate of credit
difference between initial carrying losses over the life of the financial instrument
amount and principal maturity amount
c) (-) reduction for impairment or
uncollectibility MEASUREMENT OF IMPAIRMENT
If the initial amount recognized is… When measuring expected losses, the entity
 lower than the principal amount, should consider:
amortization of the difference is added 1. Probability-weighted outcome
to the carrying amount 2. Time value of money
 higher than the principal amount, 3. Reasonable and supportable information
amortization of the difference is
deducted to the carrying amount *PFRS does not prescribe a particular method;
the carrying amount of the loan receivable shall
be reduced either directly or through the use of
an allowance account
ORIGINATION FEES – charged by the bank
against borrower; recognized as unearned
interest income & amortized over the term of
loan CREDIT RISK – risk that one party to a
financial instrument will cause a financial loss
Direct origination costs – not chargeable or the other party by failing to discharge an
against borrower; offset directly against any obligation
unearned origination fees received
*The organization fees received and the direct
origination cost are included in the
measurement of the loan receivable