Let’s Check ULO 2-3

1. True 5. True
2. False 6. True
3. False 7. True
4. False 8. True

MCQ
9. d.
10. b.

Let’s Analyze
Problem 22 – ABC Bank
1.What is the entry to record the receipt of the interest income on December 31, 2019?
Answer:
c. Cash 890,760
Interest Income 890,760
Solution:

Principal amount P 8,000,000

Direct Original cost incurred 123,000
Origination cost received from borrower (700,000)
Carrying amount on Loan receivable - Jan 1, 2019 P 7,423,000

Interest income (7,423,000 x 12%) P 890,760

Interest received (8,000,000 x 10%) (800,000)
Amortization P 90,760

2. What is the interest income for 2019?

Answer: d. 890,760
Solution:
Interest income = 7,423,000 x 12% effective rate = P 890,760

Problem 23 – National Bank

1. What is the entry to recognize the impairment loss?
Answer:
c. Impairment Loss 592,100
Allowance for loan impairment 592,100
 Beg. Loan receivable 5,000,000
Principal payment (1,000,000 x 2) (2,000,000)
Loan receivable - Jan/1/20 3,000,000
In a

PV - 2021 (500,000 x 0.9091) 454,550

PV - 2022 (1,000,000 x 0.8264) 826,400
PV - 2023 (1,500,000 x 0.7513) 1,126,950
Total PV of loan 2,407,900

Loan receivable - Jan/1/2020 3,000,000

Total PV of loan (2,407,900)
Impairment loss on L/R 592,100

nutshell
Problem 24 – Safari Bank

 Requirement 1

Loan Receivables 7,500,000

Accrued Interest Receivable (12% x 7,500,000) 900,000
Total carrying amount 8,400,000

PV - Dec/31/2021 (500,000 x 0.89) 445,000

PV - Dec/31/2022 (1,000,000 x 0.80) 800,000
PV - Dec/31/2023 (2,000,000 x 0.71) 1,420,000
PV - Dec/31/2024 (4,000,000 x 0.64) 2,560,000
Total PV of loan 5,225,000

Carrying amount 8,400,000

Total PV of loan (5,225,000)
Impairment of loss 3,175,000

 Requirement 2

Interest Carrying
Date Income (12%) Projected CF Amortization Value
Dec/31/20 - - - 5,225,000
Dec/31/21 627,000 500,000 127,000 5,352,000
Dec/31/22 642,240 1,000,000 (357,760) 4,994,240
Dec/31/23 599,309* 2,000,000 (1,400,691) 3,593,549
Dec/31/24 406,451 4,000,000 (3,593,549) 0

 Requirement 3

Date Particulars Debit Credit

2018 Loan receivable 7,500,000  
Cash   7,500,000
2019 Impairment of loss 3,175,000  
Accrued Interest Receivable   900,000
Allowance for loan impairment   2,275,000
2020 Cash 500,000  
Loan Receivable   500,000
   
Allowance for loan impairment 627,000  
Interest Income   627,000
2021 Cash 1,000,000  
Loan Receivable   1,000,000
   
Allowance for loan impairment 642,240  
Interest Income   642,240
2022 Cash 2,000,000  
Loan Receivable   2,000,000
   
Allowance for loan impairment 599,309  
Interest Income   599,309
2023 Cash 4,000,000  
Loan Receivable   4,000,000
   
Allowance for loan impairment 406,451  
Interest Income   406,451
2024 Cash 8,400,000  
Interest income   900,000
Loan Receivable   7,500,000