1. Davao Bank granted a loan to a borrower on January 1, 2020.

The interest on the loan is 8% payable

annually starting December 31, 2020. The loan matures in three years on December 31, 2022. Data related
to the loan are:
Principal amount 3,000,000
Origination fees charged against the borrower 100,000
Direct origination cost incurred 260,300
After considering the origination fees charged to the borrower and the direct origination cost incurred, the
effective rate on the loan is 6%.

Principal 3,000,000
Direct origination cost 260,300 outflow of cash (TC)
Origination fees (100,000) inflow of cash (TC)
1/1/2020, Carrying Amount 3,160,300

2020

1/1 Loans Receivable 3,000,000

Cash 3,000,000

Direct Origination Cost 260,300

Cash 260,300

Cash 100,000
Direct Origination Cost 100,000

DOC - 260,300 – 100,000 = 160,300

Effective Amortization Table

Date Interest Received Interest Income Amortization CA/PV

(Principal x (CA/PV * EIR)
stated interest rate)
1/1/2020 3,160,300
12/31/2020 240,000 189,618 50,382 3,109,918
12/31/2021 240,000 186,595 53,405 3,056,513
12/31/2022 240,000 183,487 56,513 3,000,000
160,300

12/31/2020 12/31/2021 12/31/2022

Cash 240,000 240,000 240,000
Interest Income 240,000 240,000 240,000

Interest Income 50,382 53,405 56,513

DOC 50, 382 53,405 56,513

Cash 3,000,000
Loans Receivable 3,000,000
 2. Panabo Bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 10% payable
annually starting December 31, 2020. The loan matures in three years on December 31, 2022. Data related
to the loan are:
Principal amount 4,000,000
Origination fees charged against the borrower 342,100
Direct origination cost incurred 150,000
After considering the origination fees charged against the borrower and the direct origination cost
incurred, the effective rate on the loan is 12%.

Principal 4,000,000
DOC 150,000 - outflow
OC (342,100) – inflow
1/1/2020, CA 3,807,900

1/1/2020

LR 4,000,000
Cash 4,000,000

Unearned Interest Income 150,000

Cash 150,000

Cash 342,100
Unearned Interest Income 342,100

UII – (DOC – OC) 150,000 – 342,100 = 192,100

Effective Amortization Table

Date Interest Received Interest Income Amortization CA/PV

(Principal x (CA/PV * EIR)
stated interest rate)
1/1/2020 3,807,900
12/31/2020 400,000 456,948 56,958 3,864,848
12/31/2021 400,000 463,782 63,782 3,928,630
12/31/2022 400,000 471,370 71,370 4,000,000
192,100

12/31/2020 12/31/2021 12/31/2022

Cash 400,000 400,000 400,000
Interest Income 400,000 400,000 400,000

Unearned Interest Income 56,958 63,782 71,370

Interest Income 56,958 63,782 71,370

Cash 4,000,000
LR 4,000,000
3. ChinaBank loaned P5,000,000 to Merriam Company on January 1, 2020. The terms of the loan require
principal payments of P1,000,000 each year for 5 years plus interest at 8%.

The first principal and interest payment is due on December 31, 2020. However, during 2022 Merriam
Company began to experience financial difficulties, requiring ChinaBank to reassess the collectability of the
loan.

On December 31, 2022, ChinaBank has determined that the remaining principal payments will be collected
but the collection of the interest is unlikely. The bank has accrued the interest for 2022.

The principal payments are expected to be P 500,000 on December 31, 2023, P1,000,000 on December 31,
2024 and P1,500,000 on December 31,2025. The present value of 1 at 8% for one period is .93, for two
periods is .86, and for three periods is .79.

1/1/2020
Loans Receivable 5,000,000
Cash 5,000,000

12/31/2020
Cash 1,000,000
LR 1,000,000

Cash (5M * 8%) 400,000

Interest Income 400,000

12/31/2021
Cash 1,000,000
LR 1,000,000

Cash (5M * 8%) 400,000

Interest Income 400,000

12/31/2022 financial difficulty 5,000,000 – 1,000,000 – 1,000,000 = 3,000,000

Interest Receivable (3M * 8%) 240,000

Interest Income 240,000

Date Collection PV Amount (PV)

12/31/2023 500,000 .93 = 465,000
12/31/2024 1,000,000 .86 = 860,000
12/31/2025 1,500,000 .79 = 1,185,000
Total 2,510,000

Less: CA
Current Receivable 3,000,000
Interest Receivable 240,000 3,240,000
Impairment Loss 730,000
 12/31/2020
Impairment Loss 730,000
Interest Receivable 240,000
Allowance for loan impairment 490,000

Date Interest Income (CA/PV*8%) Principal CA/PV

12/31/2022 2,510,000
12/31/2023 200,800 500,000 =299,200 2,210,800
12/31/2024 176,864 1,000,000 =823,136 1,387,664
12/31/2025 112,336 1,500,000 0
490,000
12/31/2023 2024 2025
Cash 500,000 1,000,000 1,500,000
LR 500,000 1,000,000 1,500,000

Allowance for Loan Impairment 200,800 176,864 112,336

Interest Income 200,800 176,864 112,336

4. On January 1,2019, NorthSouth Bank has granted a loan receivable to a borrower amounting to
P7,500,000. The loan is due on January 1,2024, plus annual interest payment at 12%. The interest payment
was made as scheduled on January 1,2020. However, due to financial setbacks, the borrower was unable to
make the 2021 interest payment.

On December 31,2021, the bank has considered the loan impaired and projected the cash flows from the
loan. Further, the bank has accrued the interest on December 31,2020, but did not continue to accrue
interest for 2021 due to the impairment of the loan.

Expected principal payments

December 31,2022 600,000
December 31,2023 900,000
December 31,2024 1,800,000
December 31,2025 4,200,000

Present value of 1 at 12%

For one period .89
For two period .80
For three period .71
For four period .64

1/1/2019
Loans Receivable 7,500,000
Cash 7,500,000

12/31/2019
Interest Receivable 900,000 (7,500,000 * 12%)
Interest Income 900,000
1/1/2020
Interest Income 900,000
Interest Receivable 900,000

Cash 900,000
Interest Income 900,000

12/31/2020
Interest Receivable 900,000
Interest Income 900,000

1/1/2021
Interest Income 900,000
Interest Receivable 900,000 CY 2020 – accrued interest – 900,000

12/31/2021
CY 2021 – no accrued interest

Date Collection PV of 1 at 12% PV (Amount)

2022 600,000 .89 534,000
2023 900,000 .80 720,000
2024 1,800,000 .71 1,278,000
2025 4,200,000 .64 2,688,000
Total 5,220,000

Current Receivable 7,500,000

Interest Receivable 900,000 8,400,000
Impairment Loss 3,180,000

12/31/2021

Impairment Loss 3,180,000

Interest Receivable 900,000
Allowance for Loan Impairment 2,280,000

Date Interest Income (CA *12%) Principal CA/PV

2021 5,220,000
2022 626,400 600,000 = 26,400 5,246,400
2023 629,568 900,000 = 270,432 4,975,968
2024 597,116 1,800,000 = 1,202,884 3,773,084
2025 426,916 4,200,000 = 3,773,084 0
2,280,000
December 31, 2022
Cash 600,000
Loans Receivable 600,000

Allowance for Loan Impairment 626,400

 Interest Income 626,400

December 31, 2023

Cash 900,000
Loans Receivable 900,000

Allowance for Loan Impairment 629,568

Interest Income 629,568

December 31, 2024

Cash 1,800,000
Loans Receivable 1,800,000

Allowance for Loan Impairment 597,116

Interest Income 597,116

December 31, 2023

Cash 4,200,000
Loans Receivable 4,200,000

Allowance for Loan Impairment 426,916

Interest Income 426,916