Magic Finance Company reports a loan receivable from Blue Company in the amount of P5,000,000. The initial loan’s repayments include a 10% interest rate plus annual principal payment of P1,000,000 on January 1 of each year. The loan was made on January 1, 2020. Blue made the P500,000 interest payments for 2020 but did not make the P1,000,000 principal payment nor the P500,000 interest payment in 2021. Blue is having financial difficulty because of restrictions brought about by the pandemic; thus, Magic has concluded that the loan is impaired. Analysis of Blue’s financial condition on December 31, 2021 indicates that the principal and interest currently due can be collected but it is probable tat no further interest can be collected. The probable amounts and timing of collection are determined as follows: December 31, 2022 – P1,750,000; December 31, 2023 – P2,000,000; December 31, 2024 – P1,750,000. The present value factors at 10% are as follows: One period – 0.909; Two periods – 0.826; Three periods – 0.751.How much is the impairment loss on the receivable?
Magic Finance Company reports a loan receivable from Blue Company in the amount of P5,000,000. The initial loan’s repayments include a 10% interest rate plus annual principal payment of P1,000,000 on January 1 of each year. The loan was made on January 1, 2020. Blue made the P500,000 interest payments for 2020 but did not make the P1,000,000 principal payment nor the P500,000 interest payment in 2021. Blue is having financial difficulty because of restrictions brought about by the pandemic; thus, Magic has concluded that the loan is impaired. Analysis of Blue’s financial condition on December 31, 2021 indicates that the principal and interest currently due can be collected but it is probable tat no further interest can be collected. The probable amounts and timing of collection are determined as follows: December 31, 2022 – P1,750,000; December 31, 2023 – P2,000,000; December 31, 2024 – P1,750,000. The present value factors at 10% are as follows: One period – 0.909; Two periods – 0.826; Three periods – 0.751.How much is the impairment loss on the receivable?
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