Super Bank has a P6,000,000 loan to Duper Realty, which was invested by the latter in real estate development. Due to the economic downtrend in the real estate business, Duper Realty is experiencing declining sales and is likely to default on its obligation to Super Bank. Duper Realty requests for a restructuring of its loan with Super Bank. The prevailing market rate of interest for similar obligations at the time of restructuring is 9%. Accrued interest receivable on the loan at December 31, 2020 is P600,000, based on a stated interest rate of 10 Alternatives: First Alternative Reduction of Principal to P5,000,000. Condonation of accrued interest. Extension of the maturity date to December 31, 2022. Reduction of interest rate to 8%, payable annually on December 31.
Super Bank has a P6,000,000 loan to Duper Realty, which was invested by the latter in real estate development. Due to the economic downtrend in the real estate business, Duper Realty is experiencing declining sales and is likely to default on its obligation to Super Bank. Duper Realty requests for a restructuring of its loan with Super Bank. The prevailing market rate of interest for similar obligations at the time of restructuring is 9%. Accrued interest receivable on the loan at December 31, 2020 is P600,000, based on a stated interest rate of 10
Alternatives:
First Alternative
Reduction of Principal to P5,000,000.
Condonation of accrued interest.
Extension of the maturity date to December 31, 2022.
Reduction of interest rate to 8%, payable annually on December 31.
Second Alternative
Condonation of accrued interest.
The principal amount of P1,200,000 plus interest on the unpaid principal reduced to 8%, payable annually starting December 31, 2021.
Third Alternative
Payment of the accrued interest on the date of restructuring (December 31, 2020).
Extension of the maturity date of the loan to December 31, 2022, with interest during the extended term at 7% payable on December 31, 2021 and December 31, 2022.
Fourth Alternative
Extension of the maturity date to December 31, 2022.
Interest at 10% on the carrying value of the loan, payable December 31, 2021 and December 31, 2022.
Requirements:
For each alternative, compute the impairment loss to be recognized by Super Bank on December 31, 2020? (Round off present value factors to four decimal places).
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