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    FAR05-2.4 - Loan Receivable

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    Jay
    This document provides information about loan receivables, including their initial and subsequent measurement. It defines a loan receivable as a financial asset arising from a loan granted by a bank. At initial recognition, a loan receivable is measured at fair value plus direct transaction costs. Subsequently, it is measured at amortized cost using the effective interest method. Origination fees received from borrowers are recognized as unearned income and amortized over the loan term, as are any direct origination costs incurred. The document includes an example problem calculating a loan's carrying amount, interest income, and year-end carrying amount based on its principal, fees, and costs.

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    FAR05-2.4 - Loan Receivable

    Uploaded by

    Jay
    30 views1 page
    This document provides information about loan receivables, including their initial and subsequent measurement. It defines a loan receivable as a financial asset arising from a loan granted by a bank. At initial recognition, a loan receivable is measured at fair value plus direct transaction costs. Subsequently, it is measured at amortized cost using the effective interest method. Origination fees received from borrowers are recognized as unearned income and amortized over the loan term, as are any direct origination costs incurred. The document includes an example problem calculating a loan's carrying amount, interest income, and year-end carrying amount based on its principal, fees, and costs.

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    FAR05-2.4 - Loan Receivable

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    This document provides information about loan receivables, including their initial and subsequent measurement. It defines a loan receivable as a financial asset arising from a loan granted by a bank. At initial recognition, a loan receivable is measured at fair value plus direct transaction costs. Subsequently, it is measured at amortized cost using the effective interest method. Origination fees received from borrowers are recognized as unearned income and amortized over the loan term, as are any direct origination costs incurred. The document includes an example problem calculating a loan's carrying amount, interest income, and year-end carrying amount based on its principal, fees, and costs.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    30 views1 page

    FAR05-2.4 - Loan Receivable

    Uploaded by

    Jay
    This document provides information about loan receivables, including their initial and subsequent measurement. It defines a loan receivable as a financial asset arising from a loan granted by a bank. At initial recognition, a loan receivable is measured at fair value plus direct transaction costs. Subsequently, it is measured at amortized cost using the effective interest method. Origination fees received from borrowers are recognized as unearned income and amortized over the loan term, as are any direct origination costs incurred. The document includes an example problem calculating a loan's carrying amount, interest income, and year-end carrying amount based on its principal, fees, and costs.

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    © All Rights Reserved
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    No. 125 Brgy.

    San Sebastian
    Lipa City, Batangas, Philippines
    Mobile : 0927 283 8234
    Telephone : (043) 723 8412
    Gmail : icarecpareview@gmail.com

    Loan Receivable

    LOAN RECEIVABLE
    A loan receivable is a financial asset arising from a loan granted by a bank or other financial institution to a borrower or client.

    INITIAL MEASUREMENT
    At initial recognition, an entity shall measure a loan receivable at fair value plus transaction costs that are directly attributable to
    the acquisition of the financial asset. Transaction costs that are directly attributable to the loan include direct origination costs.

    However, indirect origination costs should be treated as outright expense.

    SUBSEQUENT MEASUREMENT
    A loan receivable is measured at amortized cost using the effective interest method.

    ACCOUNTING FOR ORIGINATION FEES


    The origination fees received from borrower are recognized as unearned interest income and amortized over the term of the loan. If
    the origination fees are not chargeable against the borrower, the fees are known as “direct origination costs”. These are also deferred
    and amortized over the term of the loan.

    FINANCIAL ACCOUNTING AND REPORTING (FAR) PROBLEMS

    Problem 1:
    Citystate Bank granted a loan to a client on January 1, 2023. The interest on the loan is 10% payable annually starting December 31,
    2023. The loan matures in three years on December 31, 2025. Pertinent information on the loan is provided below:

    Principal amount P10,000,000


    Origination fee received from the borrower 680,000
    Direct origination cost incurred 200,000
    Indirect origination cost incurred 100,000

    After considering the origination fee received from the borrower and the direct origination cost incurred, the effective rate on the loan is
    12%.

    1. What is the carrying amount of the loan on January 1, 2023?


    A. 9,320,000 C. 9,620,000
    B. 9,520,000 D. 10,000,000

    2. What is the interest income for 2023?


    A. 952,000 C. 1,094,400
    B. 1,000,000 D. 1,142,400

    3. What is the carrying amount of the loan on December 31, 2023?


    A. 9,520,000 C. 9,821,888
    B. 9,662,400 D. 10,000,000

    END OF HANDOUT

    1|P a g e TSIY/RSORIANO/BVILLALUZ/JBINALUYO

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