BDO loaned P5,000,000 to NOBLE Company on January 1, 2016. The terms of the loan require the principal payment of P5,000,000 to be made after 5 years on December 31, 2020 and interest at 12% to be paid annually on December 31. The first interest payment is due on December 31, 2016. NOBLE Company made the required interest payment during 2016. However, during 2017 NOBLE Company began to experience financial difficulties, which led to the default of the 2017 required interest payment. This caused BDO to reassess the collectability of the loan. On December 31, 2018, BDO did not continue to accrue interest and determined that the remaining principal payment will be collected but it is probable that the accrued interest further interest cannot be collected. The probable timing and amount of collections is determined as follows: December 31, 2019 P500,000 December 31, 2020 1,000,000 December 31, 2021 1,500,000 December 31, 2022 2,000,000 The present value at 12% is as follows: For one period 0.89 For two periods 0.80 For three periods 0.71 For four periods 0.64 What is the loan impairment loss on December 31, 2018?

BDO loaned P5,000,000 to NOBLE Company on January 1, 2016. The terms of the loan require the principal payment of P5,000,000 to be made after 5 years on December 31, 2020 and interest at 12% to be paid annually on December 31. The first interest payment is due on December 31, 2016. NOBLE Company made the required interest payment during 2016. However, during 2017 NOBLE Company began to experience financial difficulties, which led to the default of the 2017 required interest payment. This caused BDO to reassess the collectability of the loan. On December 31, 2018, BDO did not continue to accrue interest and determined that the remaining principal payment will be collected but it is probable that the accrued interest further interest cannot be collected. The probable timing and amount of collections is determined as follows: December 31, 2019 P500,000 December 31, 2020 1,000,000 December 31, 2021 1,500,000 December 31, 2022 2,000,000 The present value at 12% is as follows: For one period 0.89 For two periods 0.80 For three periods 0.71 For four periods 0.64 What is the loan impairment loss on December 31, 2018?

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

BDO loaned P5,000,000 to NOBLE Company on January 1, 2016. The terms of the
loan require the principal payment of P5,000,000 to be made after 5 years on
December 31, 2020 and interest at 12% to be paid annually on December 31. The
first interest payment is due on December 31, 2016. NOBLE Company made the
required interest payment during 2016. However, during 2017 NOBLE Company
began to experience financial difficulties, which led to the default of the 2017 required
interest payment. This caused BDO to reassess the collectability of the loan. On
December 31, 2018, BDO did not continue to accrue interest and determined that the
remaining principal payment will be collected but it is probable that the accrued
interest further interest cannot be collected. The probable timing and amount of
collections is determined as follows:
December 31,
2019
P500,000
December 31,
2020
1,000,000
December 31,
2021
1,500,000
December 31,
2022
2,000,000
The present value at 12% is as follows:
For one period
0.89
For two periods
0.80
For three periods
0.71
For four periods
0.64
What is the loan impairment loss on December 31, 2018?

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