An entity had an outstanding loan of P3,000,000. The loan has an effective interest rate of 12%. On December 31, 2019, the entity was experiencing financial difficulty and entered into a restructuring agreement with a bank under the following modifications: reduce the principal balance by 20%, extend the maturity date from December 31, 2019 to January 1, 2023 and reduce the interest rate to 10%. Interest is payable annually every December 31. There was no accrued interest as December 31, 2019. The present value factors of 1 for three periods at 10% and 12% are 0.751 and 0.712, respectively. The present value factors of an ordinary annuity for three periods at 10% and 12% are 2.487 and 2.402, respectively. 35. What amount of gain should be reported as a result of the modification of terms under IFRS? a. P720,000 b. P600,720 c. P714,720 d. PO 36. What amount of interest expense should be reported for the year ended December 31, 2020? a. P274,234 b. P240,000 c. P239,928 d. P288,000

An entity had an outstanding loan of P3,000,000. The loan has an effective interest rate of 12%. On December 31, 2019, the entity was experiencing financial difficulty and entered into a restructuring agreement with a bank under the following modifications: reduce the principal balance by 20%, extend the maturity date from December 31, 2019 to January 1, 2023 and reduce the interest rate to 10%. Interest is payable annually every December 31. There was no accrued interest as December 31, 2019. The present value factors of 1 for three periods at 10% and 12% are 0.751 and 0.712, respectively. The present value factors of an ordinary annuity for three periods at 10% and 12% are 2.487 and 2.402, respectively. 35. What amount of gain should be reported as a result of the modification of terms under IFRS? a. P720,000 b. P600,720 c. P714,720 d. PO 36. What amount of interest expense should be reported for the year ended December 31, 2020? a. P274,234 b. P240,000 c. P239,928 d. P288,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

An entity had an outstanding loan of P3,000,000. The loan has an effective interest rate of
12%. On December 31, 2019, the entity was experiencing financial difficulty and entered
into a restructuring agreement with a bank under the following modifications:
reduce the principal balance by 20%, extend the maturity date from December 31, 2019 to
January 1, 2023 and reduce the interest rate to 10%. Interest is payable annually every
December 31. There was no accrued interest as December 31, 2019. The present value
factors of 1 for three periods at 10% and 12% are 0.751 and 0.712, respectively. The
present value factors of an ordinary annuity for three periods at 10% and 12% are 2.487
and 2.402, respectively.
35. What amount of gain should be reported as a result of the modification of terms
under IFRS?
a. P720,000
b. P600,720
C. P714,720
d. PO
36. What amount of interest expense should be reported for the year ended December
31, 2020?
a. P274,234
b. P240,000
c. P239,928
d. P288,000

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