LOANS RECEIVABLE: LOAN IMPAIRMENT

Will the borrower pay?

If impaired:
full DETERMINE
a. date of cashflow
PRINCIPAL partial - lump sum multiply with

none - installment PV factor

% b. project amount
INTEREST
full

PV Factor of all cashflows:

 Lump sum = projected amount x PV of 1 @ original EIR% for remaining period
 Equal installment = projected amount x PV of ordinary annuity @ original EIR% for remaining
period
 Unequal installment = projected amount x PV of 1 @ original EIR% for period 1
= projected amount x PV of 1 @ original EIR% for period 2
= projected amount x PV of 1 @ original EIR% for period 3

If impaired
= carrying amount of LR = Project future cashflow = PV of all future cashflows = calculate for impairment loss

Principal amt. xx Given: Carrying amt of LR xx

Add: accrued int. 1. P x PV factor xx Less: PV of all Future
income xx 2. P x PV factor xx cashflows xx
Carrying amt for xx PV of all future Impairment loss xx
LR cashflow xx
2 Methods in recording Impairment Loss:
1. Direct Method
2. Indirect Method

TIPS:
Difference is impairment loss = 284,520

Carrying amount Project Future Present Value of all

of LR Cashflow future cashflow
1,120,000 1,000,000 835,480

Principal + accrued receivable remaining amount multiplied by the

Not yet received to be paid given PV value

Difference of allow method

= 164,520

Recognized as INTEREST INCOME for the remaining life Carrying amount LR xx

X original EIR% xx
of the loan using original effective interest rate
Interest Income xx

NOTE: Values are given for presentation