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    IA - Receivables Addtl Concepts

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    Diana Acosta
    The document discusses concepts related to loans receivable, including: 1) Loans receivable are initially measured at fair value plus transaction costs and subsequently measured at amortized cost using the effective interest method. 2) Impairment of loans receivable occurs when the present value of expected future cash flows is less than the carrying amount, requiring the recognition of an impairment loss. 3) The impairment loss is calculated as the difference between the carrying amount and present value of future cash flows, with an offsetting entry made to an allowance for impairment account.

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    IA - Receivables Addtl Concepts

    Uploaded by

    Diana Acosta
    10 views3 pages
    The document discusses concepts related to loans receivable, including: 1) Loans receivable are initially measured at fair value plus transaction costs and subsequently measured at amortized cost using the effective interest method. 2) Impairment of loans receivable occurs when the present value of expected future cash flows is less than the carrying amount, requiring the recognition of an impairment loss. 3) The impairment loss is calculated as the difference between the carrying amount and present value of future cash flows, with an offsetting entry made to an allowance for impairment account.

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    IA_Receivables-Addtl-Concepts

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    The document discusses concepts related to loans receivable, including: 1) Loans receivable are initially measured at fair value plus transaction costs and subsequently measured at amortized cost using the effective interest method. 2) Impairment of loans receivable occurs when the present value of expected future cash flows is less than the carrying amount, requiring the recognition of an impairment loss. 3) The impairment loss is calculated as the difference between the carrying amount and present value of future cash flows, with an offsetting entry made to an allowance for impairment account.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    10 views3 pages

    IA - Receivables Addtl Concepts

    Uploaded by

    Diana Acosta
    The document discusses concepts related to loans receivable, including: 1) Loans receivable are initially measured at fair value plus transaction costs and subsequently measured at amortized cost using the effective interest method. 2) Impairment of loans receivable occurs when the present value of expected future cash flows is less than the carrying amount, requiring the recognition of an impairment loss. 3) The impairment loss is calculated as the difference between the carrying amount and present value of future cash flows, with an offsetting entry made to an allowance for impairment account.

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    INTERMEDIATE ACCOUNTING 1: RECEIVABLES- ADDITIONAL CONCEPTS

    LOANS RECEIVABLE

     Financial asset arising from a loan granted by a bank or other financial ins tu on to a borrower or client.
     The term of the loan may be short term but in most cases, the repayment periods cover several years

    MEASUREMENT

    INITIAL MEASUREMENT SUBSEQUENT MEASUREMENT


     Fair Value plus Transac on Costs  Loans Receivable shall be
     Transac on Costs that are directly a ributable to Loan subsequently measured at
    Receivable include direct origina on costs amor zed cost using the
     Direct Origina on Costs- added to the amount of loan and are effec ve interest method.
    subsequently amor zed (decreases both carrying amount and
    interest income)
     Indirect Origina on Costs- treated as outright expense
     Origina on Fees- ini ally deducted to the amount of loan and
    subsequently amor zed (increases both carrying amount and
    interest income)
     Origina on Cost Incurred Less Origina on Fees Received =
    Transac on Cost

    Sample Problem:

    CPA Bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 12% payable annually star ng
    December 31, 2020. The loan matures in 3 years on December 31, 2022. The effec ve interest for the loan is 14%

    Principal 5,000,000
    Origina on Fees received from borrower 331,800
    Direct Origina on cost incurred 100,000
    Indirect Origina on cost incurred 5,000

    Ini al Measurement:

    Principal Amount 5,000,000


    Origina on Fees (331,800)
    Direct Origina on Cost 100,000
    Ini al Carrying Amount of Loan 4,768,200

    Journal Entry:

    Loan Receivable 5,000,000


    Cash 5,000,000
    To record the loan
    Cash 331,800
    Unearned Interest Income 331,800
    To record Origina on Fees received from borrower
    Unearned Interest Income 100,000
    Cash 100,000
    To record origina on fees paid
    Administra ve Expense 5,000
    Cash 5,000
    To record the indirect origina on cost
    Amor za on Table:

    Date Interest Received Interest Income Amor za on Carrying Amount


    A (FA x NR) B (CA x ER) (B – A) D
    Jan. 01, 2020 4,768,200
    Dec. 31, 2020 600,000 667,548 67,548 4,835,748
    Dec. 31, 2021 600,000 677,005 77,005 4,912,753
    Dec. 31, 2022 600,000 687,247 87,247 5,000,000

    Note:
    Interest Received- Face Amount or Principal Amount x Nominal Rate or Stated Rate
    Interest Income – Carrying Amount x Effec ve Rate

    Journal Entry:

    Dec. 31, 2020 Cash 600,000


    Unearned Interest Income 67,548
    Interest Income 667,548
    Dec. 31, 2021 Cash 600,000
    Unearned Interest Income 77,005
    Interest Income 677,005
    Dec. 31, 2022 Cash 600,000
    Unearned Interest Income 87,247
    Interest Income 687,247

    IMPAIREMENT RECEIVABLE
     All receivables are subject to risk which means there is always a chance that a receivable will not be collected.
     PFRS 9 explicitly states that “an en ty shall recognize loss allowance for expected credit losses of financial
    assets measured at amor zed cost”
     The expected losses from credit risk are “impairment of receivables”
     For Accounts Receivable= Impairment Loss is recognized through recording of Doub ul Accounts Expense and
    Allowance for Doub ul Accounts
     For Notes and Loans, Impairment Loss is recognized through recording of Impairment Loss and Allowance for
    Impairment

    Computa on of Impairment:
    The impairment loss is the difference between the Carrying Value of the Instrument and the Present Value of Future
    Cash Flows

    Carrying Amount of Loan xx


    Less: Present Value of Future Cash Flows xx
    Impairment Loss xx
    Carrying Amount is the Uncollected por on of the instrument (Principal ff Accrued Interest)
    The Allowance is the difference between the Face Amount and the Present Value of Future Cash Flows

    Face Value of Loan xx


    Less: Present Value of Future Cash Flows xx
    Allowance for Impairment xx
    Sample Problem:
    CPA Bank loaned P20,000,000 to a borrower on January 1, 2018. The terms of the of the loan require principal payments
    of P4,000,000 each year for 5 years plus interest at 8%. The first principal and interest payment are due on December 31,
    2018. The borrower made the required payments on December 31, 2018 and December 31, 2019. However, during 2020
    the borrower began to experience financial difficul es, requiring the bank to reassess the collectability of the loan.

    On December 31, 2020, the bank has determined that the remaining principal payments will be collected but the
    collec on of the interest is unlikely. The bank has accrued the interest for 2020. Present Value of 1 at 8% for one period –
    0.93, two period – 0.86, for three periods – 0.79. Expected principal payments are as follows: December 31, 2021 –
    P2,000,000, December 31, 2022 – P4,000,000, December 31, 2023 – P6,000,000

    Computa ons:
    Principal (Uncollected) 12,000,000
    Add: Accrued Interest 960,000
    Carrying Amount 12,960,000

    2,000,000 x 0.93 = 1,860,000


    4,000,000 x 0.86 = 3,440,000
    6,000,000 x 0.79 = 4,740,000
    Present Value of Future Cash Flows 10,040,000

    Carrying Amount of Loan 12,960,000


    Less: PVFCF 10,040,000
    Impairment Loss 2,920,000

    Face Value of Instrument 12,000,000


    Less: Present Value of Future Cash Flows (10,040,000)
    Allowance for Impairment 1,960,000

    Journal Entry:

    Impairment Loss 2,560,000


    Interest Receivable 600,000
    Allowance for Impairment 1,960,000

    Amor za on Table:

    Date Principal Paid Interest Income Amor za on Carrying Amount


    Jan. 01, 2020 10,040,000
    Dec. 31, 2020 2,000,000 803,200 1,196,800 8,843,200
    Dec. 31, 2021 4,000,000 707,456 3,392,544 5,550,656
    Dec. 31, 2022 6,000,000 449,344 5,550,656 -

    Journal Entry:
    Dec. 31, 2020 Cash 2,000,000
    Allowance for Impairment 1,196,800
    Interest Income 803,200
    Dec. 31, 2021 Cash 4,000,000
    Allowance for Impairment 3,392,544
    Interest Income 707,456
    Dec. 31, 2022 Cash 6,000,000
    Allowance for Impairment 5,550,656
    Interest Income 449,344

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