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What amount of gain should be reported as a result of the modification of terms under ifrs?

What amount of gain should be reported as a result of the modification of terms under ifrs?

FINANCIAL ACCOUNTING
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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What amount of gain should be reported as a result of the modification of terms under ifrs?

An entity had an outstanding loan of P3,000,000. The loan has an effective interest rate of 12%. On December 31, 2019, the entity was experiencing financial difficulty and entered into a restructuring agreement with a bank under the following modifications: Reduce the principal balance by 20%, extend the maturity date from December 31, 2019 to January 1, 2023 and reducing the interest rate to 10%. Interest is payable annually every December 31. There was no accrued interest as of December 31, 2019. The present value factors of 1 for three periods at 10% and 12% are 0.751 and 0.712 respectively and the present value factors of an ordinary annuity for three periods at 10% and 12% are 2.487 and 2.402 respectively.
Transcribed Image Text:An entity had an outstanding loan of P3,000,000. The loan has an effective interest rate of 12%. On December 31, 2019, the entity was experiencing financial difficulty and entered into a restructuring agreement with a bank under the following modifications: Reduce the principal balance by 20%, extend the maturity date from December 31, 2019 to January 1, 2023 and reducing the interest rate to 10%. Interest is payable annually every December 31. There was no accrued interest as of December 31, 2019. The present value factors of 1 for three periods at 10% and 12% are 0.751 and 0.712 respectively and the present value factors of an ordinary annuity for three periods at 10% and 12% are 2.487 and 2.402 respectively.
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