PROBLEM 3

On January 1, 2013, Handsome Co. extended a loan to Beautiful Co. and received a five-year,
12%, P5,000,000 note. The amount extended resulted to a yield rate of 10%. The note calls for
annual interest to be paid every December 31.

Handsome received the 2013, 2014 and 2015 interest on schedule, however, during 2016,
Beautiful had been experiencing financial difficulties. On December 31, 2016, Beautiful was not
able to pay the interest. Handsome recorded the accrued interest for 2016.

Beautiful communicated to Handsome a revised payment scheme due to the recent financial
difficulty the entity had experience. The payment schedule included the following:
 Beautiful will not be paying the interest anymore
 The principal will be paid in four (4) equal instalments starting December 31, 2018

The effective interest rate on December 31, 2016 is 13%.

Note: round-off present value factors to 4 decimal places (i.e. x.xxxx)

Requirements:
1. What is the amount of loan extended to Beautiful Co.?
2. How much is the interest income for 2016?
3. What is the present value of the recoverable amount on December 31, 2016?
4. How much is the impairment loss?
5. How much is the interest income for 2017, 2018, 2019, 2020, and 2021?
6. What is the balance of loan receivable as of December 31, 2017, 2018, 2019, 2020, and
2021?