2nd Departmental Quiz
Financial assets are derecognized when the entity
Intermediate Accounting 1
(40 points)
True or False: Write the word TRUE if the statement is
correct otherwise write FALSE.
1. According to PFRS 9, expected credit losses is the
weighted average of credit losses with the respective
risks of a default occurring as the weights.
2. A financial asset is credit-impaired when one or
more events that have detrimental impact on the
estimated future cash flows of that financial asset
have occurred.
3. When there is a significant increase in the credit risk
on a financial asset since its initial recognition,
interest revenue is computed on the net carrying
amount of the financial asset (i.e., gross carrying
amount less loss allowance)
4. The recoverable amount of a credit-impaired
financial asset (but not purchased or originated
credit-impaired or variable rate loan) is computed as
the present value of the remaining cash flows from
the instrument discounted at the current rate at the
reporting date.
5. Entities may apply a simplified approach when
recognizing impairment losses on trade receivables.
6. The impairment requirements of PFRS 9 are
applicable to all debt instruments including those
that are measured at fair value through profit or loss.
7. An entity recognizes impairment gain when there is
an improvement in the credit quality of a previously
impaired financial asset.
8. The effect of direct origination cost is a decrease in
the effective interest rate of the loan receivable.
9. If credit risk has not increased significantly since
initial recognition, an entity may recognize a loss
allowance equal to 12-month expected credit
losses.
10. The impairment model under PFRS 9 is referred to
as the expected credit losses model.
11. An entity recognizes loans receivable that are
neither trade receivable nor purchased or originated
credit-impaired financial assets. If at the reporting
date, the entity determines that the credit risk on the
loans has increased significantly since initial
recognition, the entity shall measure the loss
allowance equal to lifetime expected credit losses.
12. A move from “Stage 2” impairment to “Stage 1”
could lead to the recognition of impairment gain on a
financial asset.
13. A change in the measurement of the loss allowance
from 12-month expected credit losses to lifetime
expected credit losses could lead to the recognition
of impairment gain on a financial asset.
14. Before impairment, the carrying amount of a credit-
impaired loan or note receivable under “Stage 3” of
the general approach to impairment is equal to the
unpaid principal plus any recorded accrued interest
receivable.
15.
becomes a party to the contractual provisions of the
instrument.
16. When a transferor is obliged to repurchase the
transferred financial asset, the transfer does not
result to derecognition.
17. A receivable is discounted with a bank and the “loan
payable” account was credited. This transfer is
treated as secured borrowing.
18. Pledged transactions are accounted for by
segregating the pledged receivables from the other
receivable through a journal entry.
19. When a transferee has obtained the right to pledge
or exchange either the transferred assets or
beneficial interests in the transferred assets, said
transfer is qualified for derecognition.
20. The sole justification for providing for doubtful
accounts is matching.
Problem Solving:
Problem 1
On January 1, 2016, Gon Company, a calendar-year
firm, gave a loan to Kilua Enterprises amounting to
P100,000 and received a two-year, 6%, P100,000 note.
The note calls for annual interest to be paid each
December 31. Gon collected the 2016 interest on
schedule.
At December 31, 2017, however, based on Kilua’s
recent financial problems, Gon expects that the 2017
interest will not be collected and that only P60,000 of the
principal due December 31, 2017 will be collected. Gon
had recorded the accrued interest of 2017.
The P60,000 principal amount is expected to be
collected in two equal instalments on December 31,
2019 and December 31, 2021.
Below are PV factors. Use them WISELY in the
computation of the PV of the loan as of December 31,
2017:
PV of 1 for 1 period discounted at 6% .9434
PV of 1 for 2 periods discounted at 6% .8900
PV of 1 for 3 periods discounted at 6% .8396
PV of 1 for 4 periods discounted at 6% .7921
Requirements: (10)
1. Carrying value of the loan as of December 31,
2016.
2. Interest income in 2016.
3. Accrued interest in 2017.
4. Carrying value of the loan as December 31,
2017 before the impairment on December 31,
2017.
5. Recoverable amount of the loan as of December
31, 2017.
6. Impairment loss in 2017.
7. Give the entry to record the impairment event on
December 31, 2017.
8. Carrying value of the loan as of December 31,
2018.
9. Interest income in 2018.
10. Carrying value of the loan as of December 31,
2019.
 Problem 2

Purple Company showed the following balance on

December 31, 2018:

Accounts receivable P2,000,000

The following transactions transpired for Purple

Company during the year 2019:

a. On May 1, received a P300,000, six-month, 12%

interest bearing note from MN, a customer, in
settlement of an account.

b. On June 30, factored P400,000 of its accounts

receivable to a finance company. The finance
company charged a factoring fee of 5% of the
accounts factored and withheld 20% of the amount
factored.

c. On August 1, Purple Company discounted the MN

note at the bank at 15% with recourse classified as
conditional sale.

d. On November 1, MN defaulted on the P300,000

note. Purple Company paid the bank the total
amount due plus a P12,000 protest fee and other
bank charges.

e. On December 31, Purple Company assigned

P600,000 of its accounts receivable to a bank under
nonnotification basis. The bank advanced 80% less
a service fee of 5% of the accounts assigned. Purple
Company signed a promissory note for the loan.

f. On December 31, Purple Company collected from

MN in full including interest on total amount due at
12% since default date.

g. On December 31, it is estimated that 5% of the

outstanding accounts receivable may prove
uncollectible.

Requirements: (10)
1. Give the entry to record May 1, 2019 transaction.
2. True or false? The transaction letter “b” is an event
that qualifies for derecognition of financial asset.
3. How much is the loss from factoring on June 30,
2019?
4. How much was the gain or (loss) from discounting
on August 1, 2019.
5. True or false? The transaction letter “c” is an event
that qualifies for derecognition of financial asset.
6. What was the total amount paid by Purple to the
bank on November 1 as a result of the default by
the primary liable party?
7. True or false? The transaction letter “e” is an event
that qualifies for derecognition of financial asset.
8. How much is the equity of the assignor over the
assigned accounts as of December 31, 2019?
9. Compute the loss allowance for accounts
receivable as of December 31, 2019.
10. Carrying value of the accounts receivable as of
December 31, 2019.