RECEIVABLES- ADDITIONAL CONCEPTS

PROBLEM 5

1 ORIGINATION COSTS AND FEES

Principal amount 5,000,000
Direct origination cost 261,986
Origination fee (2Mx6%) -100,000
INITIAL CARRYING AMOUNT OF LOAN RECEIVABLE 5,161,986

FIRST TRIAL (using 9%)

Principal of (5,000,000 x PV of 1 @9%, n=4) +
Interest of (500,000 x PV of ordinary annuity @9%, n=4) = 5,161,986
(5,000,000 x 0.70842521105) + (500,000 x 3.23971987722) = 5,161,986
(3,542,126 + 1,619860) = 5,161,986
The effective interest rate is 9%

DATE COLLECTIONS INTEREST INCOME AMORTIZATION PRESENT VALUE

1/1/20x1 5,161,986
12/31/20x1 500,000 464,579 35,421 5,126,565
12/31/20x2 500,000 461,391 38,609 5,087,956
12/31/20x3 500,000 457,916 42,084 5,045,872
12/31/20x4 500,000 454,128 45,872 5,000,000

2 DAY-1 DIFFERENCE
INITIAL MEASUREMENT: 2M X PV of 1 @10%, n=4 = 1,366,027

Jan-01 Loan receivable 2,000,000

20x1 Unrealized loss 633,973
Cash 2,000,000
Unearned interest 633,973

3 IMPAIRMENT: 3-BUCKET APPROACH

SOLUTION
July 1, 20x1

Jul-01 Loan receivable 2,000,000

20x1 Cash 2,000,000

Jul-01 Impairment loss 20,000

20x1 Loss allowance 20,000
 December 31, 20x1

Dec-31 Impairment loss 71,000

20x1 Loss allowance (91k-20k) 71,000

Dec-31 Interest receivable 100,000

20x1 Interest income (2M x 10% x 6/12) 100,000

December 31, 20x2

Dec-31 Loss allowance (91k-5k) 86,000

20x2 Impairment gain 86,000

Dec-31 Interest receivable 100,000

20x2 Interest income (2M x 10% x 6/12) 100,000

4 CREDIT IMPAIRED FINANCIAL ASSET

SOLUTION:
Present value of estimated future cash flows 2,486,852
Carrying amount before impairment -3,400,000
IMPAIRMENT LOSS -913,148

DATE COLLECTIONS INTEREST INCOME AMORTIZATION PRESENT VALUE

12/31/20x1 2,486,852
12/31/20x2 1,000,000 248,685 751,315 1,735,537
12/31/20x3 1,000,000 173,554 826,446 909,091
12/31/20x4 1,000,000 90,909 909,901 -

5 EVALUATION OF TRANSFERS OF FINANCIAL ASSET

Nov-14 Cash 28,000

20x1 Liability on repurchase agreement 28,000