PROBLEM 2 On January 1, 2019, DGA Bank provided a loan of P4,000,000 to GGA Company. Under the loan agreement, the effective interest rate is 10% and that GGA Company is to pay the annual interest every December 31. The principal amount of the loan is due on December 31, 2023. On December 31, 2019, DGA bank needs to measure the 12-month expected credit loss for the loan. DGA Bank determined that the probability of the loan being in default over the next 12 months is 1% and that 20% of the gross carrying amount will be lost over the term of the loan, i.e., the Loss Given Default (LGD) is 20%. On December 31, 2020, DGA Bank has determined that there is a significant increase in the credit risk of the loan receivable. The probability of the loan being in default over the life over the life of the loan is 10% and the LGD is 25% of the gross carrying amount. During 2021, GGA Company began to face financial difficulties. At year-end, DGA Bank considered the loan to be impaired. Interest for that year was collected. However, only 40% of the principal amount is expected to be received on due date. QUESTIONS: (Round off PV factors to 4 decimal places) 1. What amount of impairment loss should be recognized on December 31, 2019?

PROBLEM 2 On January 1, 2019, DGA Bank provided a loan of P4,000,000 to GGA Company. Under the loan agreement, the effective interest rate is 10% and that GGA Company is to pay the annual interest every December 31. The principal amount of the loan is due on December 31, 2023. On December 31, 2019, DGA bank needs to measure the 12-month expected credit loss for the loan. DGA Bank determined that the probability of the loan being in default over the next 12 months is 1% and that 20% of the gross carrying amount will be lost over the term of the loan, i.e., the Loss Given Default (LGD) is 20%. On December 31, 2020, DGA Bank has determined that there is a significant increase in the credit risk of the loan receivable. The probability of the loan being in default over the life over the life of the loan is 10% and the LGD is 25% of the gross carrying amount. During 2021, GGA Company began to face financial difficulties. At year-end, DGA Bank considered the loan to be impaired. Interest for that year was collected. However, only 40% of the principal amount is expected to be received on due date. QUESTIONS: (Round off PV factors to 4 decimal places) 1. What amount of impairment loss should be recognized on December 31, 2019?

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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