On December 31, 2021, the VKS Finance Company had a P3,000,000 note receivable from JP Company. The note bears 10% interest. The books reported accrued interest of P300,000 on this date. Because of financial distress suffered by JP Company, VKS Finance agreed to the restructuring and modification of the terms as follows: (1) Reduction of principal to P2,000,000; (2) Reduction of interest to 7% payable annually beginning December 31, 2022;
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
On December 31, 2021, the VKS Finance Company had a P3,000,000 note receivable from JP Company. The note bears 10% interest. The books reported accrued interest of P300,000 on this date. Because of financial distress suffered by JP Company, VKS Finance agreed to the restructuring and modification of the terms as follows:
(1) Reduction of principal to P2,000,000;
(2) Reduction of interest to 7% payable annually beginning December 31, 2022;
(3) Accrued interest on December 31, 2021 is condoned; and
(4) Principal payment was reset to December 31, 2024.
How much impairment loss should VKS Finance Company record on December 31, 2021 as a result of restructuring? Round off present value figures to two decimal places.
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