Problem 7-1 (DOC < OFR)

Date of Grant 1/1/2019

Interest rate 10%
Payment of Interest Annually Starting December 31, 2019
Term 3 years
Principal 4,000,000
DOC 150,000
OFR 342,100
EIR 12%

JE:
1/1/2019 Loans Receivable 4,000,000
Cash 4,000,000

Cash 342,100
UII 342,100

UII 150,000
Cash 150,000

Present Value of the Note:

Principal 4,000,000
- UII (OFR - DOC) 192,100
PV 3,807,900

Amortization Table
Interest Interest Income
Date Collected (10%) (12%) Amortization PV
1/1/2019 3,807,900.00
12/31/2019 400,000.00 456,948.00 56,948.00 3,864,848.00
12/31/2020 400,000.00 463,781.76 63,781.76 3,928,629.76
12/31/2021 400,000.00 471,370.24 71,370.24 4,000,000.00
192,100.00

Dec 31 Cash 400,000.00

II 400,000.00

UII 56,948.00
II 56,948.00

2020
Dec 31 Cash 400,000.00
II 400,000.00

UII 63,781.76
 II 63,781.76

2021
Dec 31 Cash 400,000.00
II 400,000.00

UII 71,370.24
II 71,370.24

Cash 4,000,000
Loans Receivable 4,000,000
Problem 7-2 (SAME WITH PROBLEM 1) (DOC < OFR)
Date of Grant 1/1/2019
Interest Rate 10%
Payment of Interest Annually starting Dec 31 2019
Term 5 years maturing on Dec 31 2023
Principal 4,000,000
DOC 61,500
OFR 350,000
EIR 12%

Requirement 1:
CA of LR on 1/1/19
CA = PV
Principal 4,000,000
DOC 61,500
OFR -350,000
PV 3,711,500

Requirement 2:
Amortization Table
Date IR (10%) II (12%) Amort PV
1/1/2019 3,711,500.00
12/31/2019 400,000.00 445,380.00 45,380.00 3,756,880.00
12/31/2020 400,000.00 450,825.60 50,825.60 3,807,705.60
12/31/2021 400,000.00 456,924.67 56,924.67 3,864,630.27
12/31/2022 400,000.00 463,755.63 63,755.63 3,928,385.90
12/31/2023 400,000.00 471,614.10 71,614.10 4,000,000.00

Requirement 3:
2019
Jan 1 Loans Receivable 4,000,000
Cash 4,000,000

Cash 350000
UII 350000

UII 61,500
Cash 61,500

Dec 31 Cash 400,000.00

II 400,000.00

UII 45,380.00
II 45,380.00
 2020
Dec 31 Cash 400,000.00
II 400,000.00

UII 50,825.60
II 50,825.60
Problem 7-3 (DOC > OFR)
Grant date 1/1/2019
Interest rate 8%
Payment of Interest Annually Starting December 31, 2019
Term 3 years maturing on December 31, 2021
Principal 3,000,000
DOC 260,300
OFR 100,000
EIR 6%

Requirement 1:
2019
Jan 1 Loans Receivable 3,000,000 PV
Cash 3,000,000 3,000,000
260,300
DOC 260,300 -100,000
Cash 260,300 3,160,300

Cash 100,000
DOC 100,000
Amortization Table
Interest
Received Interest Income
Date (8%) (6%) Amort PV Principal 3,000,000
1/1/2019 3,160,300.00 DOC 160,300
12/31/2019 240,000.00 189,618.00 50,382.00 3,109,918.00 PV 3,160,300
12/31/2020 240,000.00 186,595.08 53,404.92 3,056,513.08
12/31/2021 240,000.00 183,486.92 56,513.08 3,000,000.00
160,300.00

Dec 31 Cash 240,000.00

II 240,000.00

II 50,382.00
DOC 50,382.00

2020
Dec 31 Cash 240,000.00
II 240,000.00

II 53,404.92
DOC 53,404.92

2021
Dec 31 Cash 240,000.00
II 240,000.00
 II 56,513.08
DOC 56,513.08

Cash 3,000,000.00
LR 3,000,000.00

Requirement 2:
Non-Current Asset
Loans Receivable 3,000,000.00
DOC 109,918.00
Carrying Amount 3,109,918.00
Problem 7-4 (Same with Problem 7-3) (DOC > OFR)
Date of Grant 1/1/2019
Interest rate 10%
Payment of Interest Annually starting December 31, 2019
Term 3 years maturing on December 31, 2021
Principal 5,000,000
DOC 457,500
OFR 200,000
PV (P + DOC - OFR) 5,257,500 Requirement 1
EIR 8%

Requirement 2:
Amortization Table
Date IR (10%) II 8%) Amort PV
1/1/2019 5,257,500.00
12/31/2019 500,000.00 420,600.00 79,400.00 5,178,100.00
12/31/2020 500,000.00 414,248.00 85,752.00 5,092,348.00
12/31/2021 500,000.00 407,652.00 92,348.00 5,000,000.00

Requirement 3:
2019
Jan 1 Loans Receivable 5,000,000
Cash 5,000,000

DOC 457,500
Cash 457,500

Cash 200,000
DOC 200,000

Dec 31 Cash 500,000.00

II 500,000.00

II 79,400.00
DOC 79,400.00

2020
Dec 31 Cash 500,000.00
II 500,000.00

II 85,752.00
DOC 85,752.00

2021
Dec 31 Cash 500,000.00
 II 500,000.00

II 92,348.00
DOC 92,348.00

Cash 5,000,000.00
LR 5,000,000.00
Problem 7-5: IMPAIRMENT LOSS
Grant Date 1/1/2017
Principal 10,000,000
Periodic Principal Payment 2,000,000
Term 5 years
Interest rate 8%

Schedule of Payments:
Date Principal Interest Total Status
12/31/2017 2,000,000 800,000 2,800,000 Collected
12/31/2018 2,000,000 640,000 2,640,000 Collected
12/31/2019 2,000,000 480,000 2,480,000 Not Collected Reassessment:
12/31/2020 2,000,000 320,000 2,320,000 Remaining Principal ###
12/31/2021 2,000,000 160,000 2,160,000 Interest
10,000,000 2,400,000 12,400,000 Accrued ###
Future Interes###

New Schedule of Payments

Date Principal PV of
12/31/2020 1,000,000 1
12/31/2021 2,000,000 1
12/31/2022 3,000,000 1
6,000,000

Unpaid LR
Accrued Interest
Carrying Amount of LR
PV
Impairment Loss

Requirement 2:
2019
Dec 31 IR
II

Impairment Loss
IR
Alllowance for Loan I

2020
Dec 31 Cash
LR

Allowance for Lo
 Interest Income

2021
Dec 31 Cash
LR

Allowance for Lo
Interest Income

2022
Dec 31 Cash
LR

Allowance for Lo
Interest Income
 can be collected

Unlikely of Collection
Unlikely of Collection

PV
930,000
1,720,000
2,370,000
5,020,000

6,000,000
480,000
6,480,000
5,020,000
1,460,000 Requirement 1

Analysis: Total Impairment Loss 1,460,000

480,000 Less: Interest Receivable 480,000
### Allowance for LR Impairment 980,000

1,460,000 Uncollected Principal 6,000,000

### Allowance for LR Impairment 980,000
Alllowance for Loan I ### PV of Loans Receivable 5,020,000

Amortization Table:
1,000,000 Date Collection Interest (8%) Principal PV
### 12/31/2019 5,020,000
12/31/2020 1,000,000 401,600.00 598,400.00 4,421,600.00
401,600 12/31/2021 2,000,000 353,728.00 1,646,272.00 2,775,328.00
Interest Income ### 12/31/2022 3,000,000 224,672.00 2,775,328.00 -
980,000.00

2,000,000
###

353,728
Interest Income ###

3,000,000
###

224,672
Interest Income ###
Problem 7-6: IMPAIRMENT LOSS
Date of Grant Jan 1, 2017
Principal 7,500,000
Payment terms
Principal Jan 1, 2022
Interest Annually at 12%

Schedule of Payments:
Date Principal Interest Total Status
1/1/2018 0 900,000 900,000 Collected
1/1/2019 0 900,000 900,000 Not Collected; Accrued in the books
1/1/2020 0 900,000 900,000
1/1/2021 0 900,000 900,000
1/1/2022 7,500,000 900,000 8,400,000
Total 7,500,000 4,500,000 12,000,000

Reassessment:
Cash Flows Projection as of December 31, 2019
Date Principal PV of 1 at 12% PV
12/31/2020 500,000 0.89 445,000.00
12/31/2021 1,000,000 0.8 800,000.00
12/31/2022 2,000,000 0.71 1,420,000.00
12/31/2023 4,000,000 0.64 2,560,000.00
Total 7,500,000 5,225,000.00

Principal to be collected 7,500,000 Total Impairment Loss:

PV of Future Collections 5,225,000.00 Difference between FV and PV
Allowance for Loan Impairment 2,275,000.00 Uncollectible Accrued Interest
Total Impairment Loss

Requirement 3:
2019
Dec 31 Impairment Loss 3,175,000.00
IR 900,000
AFLI 2,275,000.00

2020
Dec 31 Cash 500,000
LR 500,000

AFLI 627,000.00 PV of LR, 12/31/19 or 1/1/20

II 627,000.00 x Rate
Interest Income
2021
Dec 31 Cash 1,000,000 Loans Receivable Balance, 12/31/20
LR 1,000,000 Less: AFLI
12/31/19
AFLI 642,240.00 12/31/20
IR 642,240.00 CA of LR, 12/31/20 or 1/1/21
x interest rate
II recognized for 2021
as AFLI Amortization
airment Loss:
between FV and PV 2,275,000.00
ble Accrued Interest 900,000
airment Loss 3,175,000.00

5,225,000.00
12%
627,000.00
ance, 12/31/20 7,000,000

2,275,000.00
(627,000.00) 1,648,000.00
5,352,000.00
12%
642,240.00
Problem 7-7: IMPAIRMENT LOSS; DELAYED COLLECTIONS
As of December 31, 2019:
Principal amount of LR 4,000,000
Due Date Dec 31, 2024
Interest rate 9%
Interest Payment Every December 31
Status of Payment:
2019 Interest Paid
Collection Forecast:
2020 Interest Missed
2021 Interest Missed
2022 Resumption of Interest Payments
Dec 31, 2025 Payment of Principal + Interest for 2025

Schedule of Payments
Date Status Principal Interest Total PVF PV
12/31/2019 Paid
12/31/2020 Missed 0.917 -
12/31/2021 Missed 0.842 -
12/31/2022 0 360,000.00 360,000.00 0.772 277,920.00
12/31/2023 0 360,000.00 360,000.00 0.708 254,880.00
12/31/2024 0 360,000.00 360,000.00 0.650 234,000.00
12/31/2025 4,000,000 360,000.00 4,360,000.00 0.596 2,598,560.00
4,000,000.00 1,440,000.00 5,440,000.00 3,365,360.00

Face Value of Loan 4,000,000.00

PV of Loan 3,365,360.00
Impairment Loss 634,640.00

2019
Dec 31 Cash 360,000
Interest Income 360,000

Impairment Loss 634,640.00

Allowance for Impairment Loss 634,640.00
2020
Dec 31 AFIL 302,882.40
II 302,882.40
(3,365,360 x 9%)

2021
Dec 31 AFIL 331,757.60
II 331,757.60
(634,640 -302,882.4)
 2022
Dec 31 Cash 360,000
Interest Income 360,000

2023
Dec 31 Cash 360,000
Interest Income 360,000

2024
Dec 31 Cash 360,000
Interest Income 360,000

2025
Dec 31 Cash 4,360,000
Loans Receivable 4,000,000
Interest Income 360,000
Problem 7-8:
Requirement 1
2019
Jan 1 Loans Receivable 3,000,000
Cash 3,000,000

Dec 31 Cash 270,000

Interest Income 270,000
(3,000,000 x 9%)

Impairment Loss 24,900

Allowance for Loan Impairment 24,900

Carrying Amount, December 31, 2019 3,000,000

Present Value of Expected Cash Flows - Dec 31, 2019
(3,000,000 x 90% x 0.65) 1,755,000
Expected Credit Loss 1,245,000
x Probability of default within 12 months 2%
Impairment Loss 24,900

2020
Dec 31 Cash 270,000
Interest Income 270,000

Impairment Loss 491,700

Allowance for Loan Impairment 491,700

Carrying Amount - December 31, 2020 3,000,000

PV of Expected Cash Flows - December 31, 2020
(3,000,000 x 60% x 0.71) 1,278,000
Expected Credit Loss 1,722,000
x Probability Of Default within r years 30%
Lifetime expected credit loss allowance 516,600
Unadjusted Allowance (Balance of AFIL before adjustment) (24,900)
Impairment Loss 491,700

2021
Dec 31 Cash 270,000
Interest Income 270,000

Impairment Loss 1,559,400

Allowance for Loan Impairment 240,600 balancing figure
Loans Receivable 1,800,000 60% of 3,000,000

Carrying amount - December 31, 2021 3,000,000

PV of Expected Cash Flows - Dec 31 2021
(3,000,000 x 40% x 0.77) 924,000 = Loans Receivable that can b
Expected Credit Loss 2,076,000 Less: AFIL
Lifetime Expected Credit Loss (516,600)
Impairment Loss 1,559,400

PV of Expected Collections
balancing figure
60% of 3,000,000
Loans Receivable that can be collected (3,000,000 x .4) 1,200,000.0

24,900
491,700
(240,600) 276,000
PV of Expected Collections 924,000.0
EIR Determination: Sample Exercises
Sample 1
NR 10% PV:
P 4,000,000 Face Value 4,000,000
I 400000 OFR -500000
periods 3 years DOC 150,000
OFR 500,000 3,650,000
DOC 150,000

OFR > DOC, therefore, EIR > NR

at 11% PV
P 4,000,000 0.7312 2,924,800.00
I 400,000 2.4437 977,480.00
3,902,280.00

at 12%
P 4,000,000 0.7118 2,847,200.00
I 400,000 2.4018 960,720.00
3,807,920.00

at 13%
P 4,000,000 0.6931 2,772,400.00
I 400,000 2.3612 944,480.00
3,716,880.00
3,650,000 is between 3, 628,640 and 3,716,880
at 14%
P 4,000,000 0.675 2,700,000.00 Interpolation:
I 400,000 2.3216 928,640.00 3,650,000 -
3,628,640.00 3,628,640.00 -

0.76

EIR 13% +
13.76%

Checking:
at 13.76%
P 4,000,000 0.6793 2,717,200.00
I 400,000 2.331 932,400.00
3,649,600.00 vs 3,650,000

Difference: 400.00 Due to Rounding Off

Sample 2: Face Value 4,000,000.00
OFR (120,000.00)
DOC 300,000.00
PV 4,180,000.00

at 9%
P 4,000,000 0.7722 3,088,800.00
I 400,000 2.5313 1,012,520.00
4,101,320.00

at 8% 4,180,000.00 therefore, EIR is in between 8% and 9%

P 4,000,000 0.7938 3,175,200.00 Interpolation:
I 400,000 2.5771 1,030,840.00 (26,040.00)
4,206,040.00 (104,720.00)

EIR 8% + 0.25
8.25%
40 and 3,716,880

3,716,880.00
3,716,880.00

0.76

ounding Off
etween 8% and 9%

0.2486631016