Loans Receivable & Debt Restructuring Practice Set PDF

Preview

Summary

● Under a debt restructuring involving substantial modification of terms, the future cash flows under the new terms shall be discounted using - ​ original effective interest rate ● There is substantial modification of terms of an old financial liability if the gain or loss on extinguishment is - ​at...

Description

● Under a debt restructuring involving substantial modification of terms, the future cash flows under the new terms shall be discounted using -  original effective interest rate ● There is substantial modification of terms of an old financial liability if the gain or loss on extinguishment is - at  least 10% of the carrying amount of the old liability ● An entity shall initially measure equity instruments issued to extinguish all or part of a financial liability at - Fair  value of the equity instrument issued ● If there is evidence that an impairment loss on loan receivable has been incurred the loss is equal to the excess of the - Carrying amount of the loans receivable over the present value of the cash flows related to the loan ● The "amortized cost" of loan receivable is the amount at which - The loan receivable is measured initially minus principal repayment, plus or minus the cumulative amortization of any difference between the initial amount recognized and the principal maturity amount, minus reduction for impairment ● Short term non-interest bearing notes receivables are usually recorded at their - present value ● Loans and receivables are non-derivative financial assets - with fixed or determinable payments that are not quoted in an active market ● Subsequent to initial recognition, a loan receivable shall be measured at amortized cost using the effective interest method ● The gain or loss from extinguishment of a financial liability by issuing equity instruments shall be presented in the statement of comprehensive income as component of finance cost other income or other expense component of other comprehensive income separate line item in profit or loss - Separate line item Profit or loss ● Due to extreme financial difficulties, an entity negotiated a restructuring of a 10%, P5,000,000 note payable due on December 31, 2020. The unpaid interest on the note on such date is P500,000. The creditor agreed to reduce the face amount to P4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from December 31, 2020. (Round off to two decimal places for present value factor). What is the carrying amount of note payable on December 31, 2021? 3,856,480

Carrying amount of the old loan (5,000,000+500,000) - P5,500,000

Carrying amount of the new loan:

Principal (4,000,000 x 0.75)

Interest (4,000,000 x 8% x 2.49)

- (3,796,800)

Gain on extinguishment

- P1,703,200

Date

Interest paid Interest Expense

`12/31/2020 12/31/2021

Amortization Carrying amount

3,796,800 320,000

379,680

59,680 3,856,480

An entity showed the following information at year end: Note Payable - P5,000,000; Accrued interest payable - P500,000. The entity is threatened with a court suit if it could not pay the maturing debt. Accordingly, the entity entered into an agreement with the creditor for the issuance of share capital in full settlement of the note payable. The agreement provided for the issue of 50,000 ordinary shares with par value of P50 and quoted price at P70. The fair value of the note payable is P4,000,000. what is the amount credited to the share premium if the equity swap is measured at the fair value of the note payable. - 1,500,000  Fair value of the Note Payable

- P4,000,000

Share capital (at par)

(50,000 shares x P50 )

Share Capital Excess

-(2,500,000)

P1,500,000

● Tavern Company borrowed P1,000,000 from a bank on July 1, 2019. As part of the loan agreement, the borrower granted the bank, a security interest in land with original cost at

P750,000. The fair value of the land on July 1, 2019 was P900,000. On June 30, 2020, the borrower defaulted on the loan and the land was transferred to the bank in full settlement of the loan on June 30, 2020. The land had a fair value of P950,000 on June 30, 2020. What amount should be recorded by the bank for the land on June 30, 2020? - 950,000 ● Due to extreme financial difficulties, an entity negotiated a restructuring of a 10%, P5,000,000 note payable due on December 31, 2020. The unpaid interest on the note on such date is P500,000. The creditor agreed to reduce the face amount to P4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from December 31, 2020. (Round off to two decimal places for present value factor). What is the gain on modification of debt for 2020?

0 - since gain on

extinguishment ang answer dapat ● Glenda Company granted a loan to a borrower on January 1, 2019. The interest on the loan is 12% payable annually starting December 31, 2019. The loan matures in three years on December 31, 2021. Principal amount - P2,500,000; Origination fees received from borrower - P165,900; Direct origination costs incurred - P50,000. After considering the origination fees, the effective interest is 14%. How much is the carrying amount of the loan receivable on December 31, 2020? Ans: 2,456,376 ● On December 1, 2019, Camille Company gave Harry Company a P200,000, 11% loan. The entity paid proceeds of P194,000 after deduction of a P6,000 non-refundable loan origination fee. The principal and interest are due in sixty monthly installments of P4,310, beginning January 1, 2020. The repayments yield an effective interest rate of 12.4% after the origination fee adjustments. What amount of interest income from this loan should Camille Company report in 2019? (Round off your final answer to whole number) - P2,005 Interest Income = Carrying Amount x Effective interest

= P194,000 x 12.4% x 1/12 = 2,005

 ote: Interest is only good for one month thus 1/12 N

● During 2019, Mary Company experienced difficulties and is likely to default on a P5,000,000, 15% three year note dated Janaury 1, 2017, payable to VPI. ON December 31, 2019, the bank agreed to settle the note and unpaid interest of P750,000 for P4,000,000 cash payable on January 31, 2020. What amount should be reported as gain from extinguishment of debt in the 2019 income statement?

Carrying amount of liability (5,000,000+750,000) = P5,750,000

Cash payment to settle obligation

Gain from extinguishment of debt

= 4 ,000,000 P  1,750,000

● On December 1, 2019, Camille Company gave Harry Company a P200,000, 11% loan. The entity paid proceeds of P194,000 after deduction of a P6,000 non-refundable loan origination fee. The principal and interest are due in sixty monthly installments of P4,310, beginning January 1, 2020. The repayments yield an effective interest rate of 12.4% after the origination fee adjustments. What is the carrying amount of loans receivable on December 31, 2019? (Round off your final answer to whole number) ANS: ??? 193,305 try daw ni ● On December 31, 2019, Manila Bank has a 5-year loan receivable with a face value of P6,000,000 dated January 1, 2017 due on December 31, 2022. Interest is payable annually every December 31 at 9%. The borrower made the required interest payment on December 31, 2018 but informed the bank that interest accrued for 2019 will be paid together with the principal at maturity. There is a high probability that remaining interest payments will not be paid. The prevailing interest rate is 10%. What is the loan impairment loss for 2019? (PV factors round off to two decimal places) ANS: ?? 1,635,000 try daw ni ● Kareen Bank granted a 10-year loan to a borrower in the amount of P1,500,000 with stated interest rate of 6%. Payments are due monthly and are computed to be P16,650. The bank incurred P40,000 of direct origination cost and P20,000 of indirect origination cost. In addition, the bank charged the borrower a 4-point (or 4%) non refundable loan

origination fee. What is the carrying amount of the loan receivable to be reported initially by the bank? 1,500,000 + 40,000 - (1,500,000 x4%) = P1,480,000...