CHAPTER 7: LOANS RECEIVABLE
directly attributable dun sa processing ng loan.
Loans receivable
 A loan receivable is a financial asset arising from a
loan granted by a bank or other financial institution
to a borrower or client. (Is a financial instrument.
Particularly a financial asset. Katulad din ng isang
n/r or a/r. kaya siya tinawag na l/r, dahil dito, ang
pinautang mo ay pera. Di katulad ng a/r or n/r,
normally ang pinapautang mo ay goods or services.
Kaya tinatawag siya a/r or n/r kung may promissory
note.) (Ginagamit ng mga banks or financial
institutions na nagllend ng pera sa kanilang mga
client. Kaya nga ang tawag ay l/r. at dahil nga it is a
contractual right to receive cash or other financial
asset, it is considered as financial instrument,
particualrly financial asset.)
APPLICABLE ACCOUNTING STANDARD
1. PFRS 9 – Financial Instruments
2. PAS 32- Financial Instrument Presentation and
Disclosure
LOANS RECEIVABLE
 Money lent to a customer or a company by a bank
or other financial institutions. (basta financial
institutions siya, loans receivable ang tawag. Kasi
naglelend tayo ng money).
 DIRECT ORIGINATION COST- directly attributable
cost to the loan receivable. (kaya tinawag na direct
origination, bago tayo magrecognize ng loans
receivable sa FS natin or sa journal bago irecord.
May mga cost tayo na gagastusin sa pagpprocess
ng loan. At ang tawag don ay origination cost.
Particularly, kung siya ay directly associated sa
pagpprocess ng loan. Ang tawag sa kanya ay direct
origination cost. Kaya nga itong direct origination
cost ay directly attributable cost (dacs) na
associated sa loans receivable.
Ano ang magiging treatment mo sa direct
origination cost? Ang gagawin sa kanya ay
capitalize or capitalizable. Anong ibig sabihin
niyan? Iiinclude mo siya doon sa value nung
mismong loans receivable na pinautang mo.
Kumbaga ikakarga.)
 INDIRECT ORIGINATION COST- (Mga origination
cost na hindi naman directly attributable. Sa
madaling salita, hindi naman siya ang give rise
directly para irecognize or iprocess natin yung loan
sa customer.
Kasama siya sa pagpprocess ng loan pero hindi siya
Ano ang magiging treatment mo sa Indirect
Origination Cost? Hindi siya isasama sa value ng
loans receivable kasi outright expense siya. Outright
expense means once na maincur yung cost, idedebit
mo siya or irerecognize mo siya as expense. Sa
madaling salita, idedebit mo siya as part of
expenses. Hindi katulad ng direct origination cost,
isasama mo siya sa value ng loans receivable. Ibig
sabihin, kapag nagdebit ka ng l/r kasama na ron
yung value ng direct origination cost.)
RECOGNITION OF LOANS RECEIVABLE (kelan rerecord)
Mag rerecognize ng financial asset if naging party ka
roon sa contract. Ibig sabihin nag agree ka na. ang sign
ka na roon sa contract. Itong l/r sa part ng nagungutang
ay contractual obligation. Kaya nga meron siyang
liability na magbayad sa iyo. At ikaw naman ay may
contractual right na maningil ng certain amount of
money with interest once na ikaw ay maging party na sa
contract. or the transfer of resources already transpired
or nangyari na. Ibig sabihin nagpautang ka na.
MEASUREMENT OF LOANS RECEIVABLE
INITIAL Fair Value + Transaction Cost
(fair value means magkano ba talaga
ang naging usap natin? Magkano ba
talaga yung naging transaction price.
Or amount na pinaloan ko or loan
granted. Kaya nga, yung Fair value na
sinasabi under loan receivable ay
transaction price. Or sa madalign
salita, magkano ba yung loan na
iggrant sa iyo.)
(Transaction cost means yung direct
origination cost or directly
attributable cost na ang give rise para
maprocess at marecognize ang isang
loans receivable. Ibig sabihin, ito yung
direct origination cost na kailangang
icapitalize.)
*kung may mga indirect origination
cost, hindi mo siya isasama sa l/r. ang
gagawin sa kanya ay ittreat mo na
siya directly or outright expense na
siya. Ibig sabihin hindi mo siya
isasama doon sa transaction cost.
SUBSEQUENT Amortized Cost using effective interest
method
ORIGINATION FEES
 Fees charged by the bank against the borrower for
the creation of the loan are known as “origination
fees.” (mga nagastos natin to process the loan).
ACCOUNTING FOR ORIGINATION FEES
 Origination Fees received from the borrower
Accounting Treatment:
INITIAL At Unearned Interest Income
(sa madaling salita, kapag si
borrower ang nagbayad ng
origination fees. Example
nakareceive ka ng 100k origination
fees. Chinarge natin kay borrower.
Therefore, ang entry ay:
cash 100k
unearned interest income 100k
SUBSEQUEN At amortized over the term of the
T loan
(for example 5 years yung duration
nung credit period, ibig sabihin, I
aamortized mo raw siya sa loob ng 5
years. So yung 100k is iddivide mo
for 5 years. At pag sinabi mong
iaamortize, ibig sabihin, every year
ay magrrecognize ka na ng earned
income. So dahil unearned siya
ngayon, ibig sabihin, every year is
may portion na maeearned diyan
galing don sa unamortized portion or
unearned portion. That is why,
subsequently, ang journal entry ay:
Unearned interest income xxx
Interest income xxx
 Origination Fees not chargeable against the
borrower (ibig sabihin, chargeable against the
company or against the bank or against the
financial institution. Sa madaling salita, ikaw yung
sumagot nung directly attributable cost.)
Accounting Treatment: At Direct Origination Cost
Direct Origination cost are deferred and also
amortized over the term of the loan.
Preferably, the direct origination costs are offset
directly against any unearned origination fees
received. (kapag daw meron kang nareceive na
origination fee from the borrower, imaminus mo
raw don or I ooffset mo raw yung binayaran mong
direct origination cost against any unearned
origination fees received).
Unearned Interest Income xxx
Cash xxx
Kaya nagiging debit si unearned interest income,
kasi binabawas siya kasi ino offset siya. Nag credit
tayo ng cash kasi tayo ang nagbayad ng direct
originaiton cost.
If the origination fees received exceed the direct
origination costs, the difference is unearned
interest income and the amortization will increase
interest income.
If the direct origination costs exceed the origination
fees received, the difference is charged to “direct
origination costs” and the amortization will
decrease interest income. (for example, ang
nareceive natin ay 100k origination fees from the
borrower. Pero 200k ang direct origination cost
natin, mas malaki. So may difference na 100k.
ang magiging treatment diyan ay: it should be
charged to DOC and the amortization will decrease
interest income. Kasi pag nag aamortized tayo
unearned interest income, nagiging interest income
na siya. Earned portion. Ngayon, dahil doc is
greater than sa nareceive mo, yung difference is
pambawas sa irerecognize mong interest income.)
ORIGINATION FEES - IMPORTANT NOTE!
 Sa madaling salita, pwedeng mangyari na ang
origination fee ay may portion na binayaran si
borrower at meron ding portion na chargeable sa
iyo. Pwedeng mag co exist yung dalawa.
 Origination fees, either nanggaling kay borrower or
direct origination cost. Pareho yang kasama sa
initial computation ng loans receivable. Both of
thema re included in the initial measurement of
L/R. (page 203)
Illustration:
Principal amount (fair Pxx
value or transaction price)
Origination fees received
from the borrower (xxx)
Direct origination
costs incurred xxx
Initial carrying amount of loan xxx
*if walang origination fees na nareceive from the
borrower, edi dalawa lang. principal amount plus direct
origination costs incurred.
FOR EXAMPLE:
On January 1, 2021, ABC Banks lends 1,000,000 from
one of its buyer or client with an interest rate of 10%
per annum. And payable simula ng December 31, 2021.
Principal amount 1,000,000
DOC 100,000
(assuming na may origination fees na ginastos si ABC)
Original Fees chargeable to customer (200,000)
Initial carrying amount of loan 900,000
PRESENTATION OF LOANS RECEIVABLE IN FS
 Kapag ang loans receivable ay collectible one time.
Therefore, yung buong loans receivable ay i-
iidentify natin as part of noncurrent asset. Pero
kapag siya ay may uniform collection. Ibig sabihin,
nakakacollect by installment, yung current portion,
kunyari 1m yung pinaloan and magbabayad si
borrower ng 200k per year. Starting from dec 2021
upto dec 2022. That would be the current portion.
Kasi collectible siya within 1 year or less. And yung
reipmaining na hindi pa nababayaran na 600k.
would be the noncurrent portion. Kasi 1m yung
utang. May collectible next year na 200k. and yung
remaining na 600k. total of 800k. bakit 800k na lang
yan? Kasi nga nakacollect ka nung 2021. Kasi
installment. Next year, may ccollectahin kang 200k.
and the next 3 years may 600k na ccollectahin.
LOANS RECEIVEBLE
Collectible One Time NCA
Uniform Collection Current portion= 200k
NC Portion = 600k
800k
IMPAIRMENT OF LOAN
(yung recoverable amount, kung magkano yung
maccollect mo ay mas maliit kaysa sa kung pano siya
nakalibro or carrying amount niya // recoverable
amount < book/CA
Yung bad debts expense ay isang form of impairment.)
 According to PFRS 9, an entity shall recognize a loss
allowance for EXPECTED CREDIT LOSSES for
financial asset measured at amortized cost.
An entity shall measure the loss allowance
(impairment loss) for a financial instrument at an
amount equal to the LIFETIME EXPECTED CREDIT
LOSSES. (When to recognize?) If the credit risk on
the financial instrument has incresed significantly
since the initial recognition. (lifetime expected
credit losses means halimabawa, nagpautang ka or
nagloan ka for 5years. Yung 5years yun yung
lfietime or period time. At don sa lifetime na yon,
may ineexpect ka ron na portion na baka hindi mo
na marecover.)
CREDIT LOSSES are the present value of all cash
shortfalls. (expected credit losses/credit losses ay
amount of money na ineexpect mong papasok sa
iyo. Pero dahil may expectation ka nga na di ito
maccollect. You have to recognize impairment loss
on that. Kaya nga sabi it is the present value of all
cash shortfalls. Yung ine expect mo raw na amount
of money na hindi mo maccollect. Pero kailangan
mong naka present value kasi long term ang pinag
uusapan natin.
Yung expected credit losses ay yung present value
nung ineexpect nating mga amount na hindi
maiibayad sa atin. Ineexpect natin sa ating mga
client or borrower na hindi maiibayad sa atin.)
EXPECTED CREDIT LOSSES are an estimate of credit
losses over the life of the financial instrument.
(kung nagpaloan ang isang bank, at binigyan niya
ng 5years ang borrower. Yung 5 years, yan yung life
of financial instrument. Kasi binigyan mo siya ng
duration na 5 years. At eto namang expected credit
losses, ito yung estimate ng amount na hindi na
maiibayad sa atin.)
WHEN TO RECOGNIZE AN IMPAIRMENT OF LOAN?
If the credit risk on the financial instrument has
increased significantly since the initial recognition.
(magrrecognize ka raw kapag daw yung credit risk
absed on ur assessment ay tumaas ng sobrang taas
or significant yung pagtaas. From the moment na
nagrecord ka daw ng loans receivable. Halimbawa
jan 1, 2021. Nagpautang si bank. Don siya
nagrecognize ng loans receivable, sa jan 1. From
that moment daw at nag assess ka ng credit risk ng
l/r mo. At na assess mo na significantly tumataas
talaga siya. That is the time na that you have to
record or recognize loss allowance or sa madaling
salita ay impairment loss).
Credit Risk – is the risk that one party to a financial
instrument will cause a financial loss for the other
party by failing to discharge an obligation. (means
mga risk na baka yung mga borrower natin ay hindi
 makabayad or ma default sila or di tayo
makakolekta.)
MEASUREMENT OF IMPAIRMENT (3
CONSIDERATIONS)
A. The probability-weighted outcome
 Estimate should reflect the possibility that a credit
loss occurs and the possibility that no credit loss
occurs.
B. The time value of money
 The expected credit losses should be discounted or
present value. (yung ineexpect mong credit losses
or mga cash inflows shortfalls ay iccompute mo
using present value or iddiscount mo siya.
C. Reasonable and supportable information that is
available without undue cost or effort. (meron ka
raw magiging basis sa pagddetermine mo ng
impairment or expected credit losses. May basis.
Ibig sabihin supported yung information na nakuha
mo. Hindi mo na kailangang gumastos ng malaki or
amg effort ng todo apra makuha itong information
na ito na magllead sa iyo to determine the expected
credit losses. Sa amdaling salita, available na,
nandyan na.)
IMPORTANT NOTE!
1. PFRS 9 DOES NOT prescribed particular method
of measuring expected credit loss. (walang
sinasabi na oh ito dapat ang kailangan mong
gamitin).
2. Impairment loss is the carrying amount of the
loan less present value of future cash flows
discounted using the ORIGINAL EFFECTIVE
RATE. (kung magkano nakalibro or CA less
recoverable amount which is PV…^^^)
3. Carrying amount of the loan is determined
either: reduced directly or use of allowance
account.
REVIEW!
 Loan receivable- money lend to our borrower.
Normally ang nag iincur ng L/R ay mga bank or
other financial institution. And normally may
interest yan.
o Accounting Standards- PFRS 9 and PAS 32
o Recognition- nirrecognize kapag naging party na
sa contract tayo or the transfer of resources
already transpired.
o Measurement- classified as financial asset at
amortized cost.
 Initially – Fair value + TC
 Subsequently – Amortized cost using
effective interest method (prevailing
market rate or rate na kalakaran sa
market)
o Presentation- depends whether loans receivable
is:
collectible one time //NCA
uniform collection // C AND NCA (nakakacollect
tayo by installment)
ILLUSTRATION 1: ACCOUNTING FOR ORIGINATION
FEES
(PAGE 208)
Itachi Bank granted a loan to a borrower on January 1,
2020. The interest on the loan is 12% payable annually
starting December 31, 2020. The loan matures in 3
years on December 2022.
Principal amount (considered as fair value) – P5,000,000
Origination fees received from borrower- 331,800
Direct origination costs incurred (transaction cost) –
P100,000
Solve for Initial Carrying Amount of the loan
*deduct origination fees received- kasi ang nagbayad ay
si borrower. Tama lang na ibawas kasi hindi naman tayo
ang nagbayad.
Journal Entries on January 1, 2020
*1. Tayo ay nagpautang kaya may debit at credit na
ganyan.
*2. Dahil galing ito kay borrower, debit ng cash. And
then irrecognize natin ito as unearned interest income
na ang magiging treatment ay amortize over life of
loans receivable. So kung tatlong taon, iaamortize natin
ng 3 taon. So ibig sabihin ng amortization, may portion
tayo na taon taon ay may ma eearn na portion. So hindi
na siya defer. Of course, may portion pa rin na
matitirang unearned which is kasama sa computation
ng subsequent carrying amount ng loans receivable.
*3. Kung irerecord natin yung binayaran nating direct
origination cost, ofc, dahil anglabas tayo ng epra. Credit
cash 100k. sabi nga ito ay nagiging kabawasan sa
unearned interest income. That is why ayan yung
dinebit natin na nanggaling don sa origination fees
received. Kaya gna, kung 331800 ang whole unearned
interest income. Dahil ni-net na natin yung direct
orignation fees. Ang magiging balance na lang niya ay
231,800. Yun na lang yung balance ng unearned interest
income as of jan 1 2020.
Unearned interest income (231800-67548) (164,252)
Carrying amount- dec 31, 2020 P4,835,748
ILLUSTRATION 2: ACCOUNTING FOR IMPAIRMENT
(IMPAIRMENT means when carrying amount or
nakalibro sa ating book ay mas mataas kaysa sa
recoverable amount). Page 208

THREE-STAGE IMPAIRMENT APPROACH

STAGE 1
 Covers debt instruments that have not declined
significantly in credit quality since initial recognition
or that have low credit risk. (mababa ang risk na
madefault ang pagbabayad ng ating mga borrower.
Mababa yung chance na magdefault si borrower.
*last bullet- given effective interest rate which is 14% But still kailangan nating mag recognized ng 12
*5000000 x 12 % = interest received yearly month expected credit loss vvv)
*4768200 x 14%= 667 548  A 12 month expected credit loss is recognized.
*amortization= interest received less interest income
*at the time of settlement dapat bumalik yan sa future STAGE 2
value na 5000000  Covers debt instruments that have declined
significantly in credit quality since initial recognition
EFFECTIVE INTEREST METHOD but do not have objective evidence of impairment.
(may chance na siya ay magdefault talaga. Ina
asses natin na may significant decline from the
moment na nirecognize natin yung loans receivable.
Pero wala tayong objective evidence na may
impairment. But still kahit na ganon, sabi ng
standard magrrecord tayo ng lifetime expected
credit loss. Hindi na siya 12 month expected credit
loss. vvv)
 Lifetime expected credit loss is recognized.
(halimbawa, yung l/r ay may duration na 5 years.
So yun yung tinatawag na lifetime. Yung buong
buhay ng l/r until such time na siya ay magmature.
So magrrecognize daw tayo ng impairment don.
Kahit na it does not have an objective evidence of
impairment).
 There’s rebutable presumption that there is a
significant increase in credit risk if the contractual
payments are more than 30 days past due. (kung
JOURNAL ENTRIES ON DECEMBER 31, 2020 isang buwan na hindi siya nakakabayad. Past due
Cash 600,000 na ang borrower. Yun daw ay may significant
Interest Income 600,000 increase in credit risk. So pag baba ng credit quality,
*naka collect ka ng interest pag taas ng credit risk. Pag baba ng credit quality,
pag taas ng chance na madefault si borrower.)
Unearned interest income 67,548
Interest Income 67,548 STAGE 3
*portion of unearned ay na earned na // amortization  Covers debt instruments that have objective
evidence of impairment at the reporting date. (may
STATEMENT PRESENTATION ON DECEMBER 31, 2020 objective evidence na talaga na meron ng
Loan Receivable 5M
 impairment. Supportable and verifiable na meron
talagang indicator na may impairment).
 A lifetime expected credit loss is recognized.

IMPORTANT NOTE!
 S1- 12 month expected credit loss
 S2 AND S3- lifetime expected credit loss

12 MONTH EXPECTED CREDIT LOSS

 Portion of the lifetime expected credit loss from
default events that are possible within 12 months
after reporting period. (kapag low credit risk lang
siya. May portion pa rin doon sa lifetime ng
receivable na mageexpect pa rin tayo ng credit loss
or yung default na hindi siya makabayad. Default
events means hindi makabayad si borrower).

LIFETIME EXPECTED CREDIT LOSS

 Expected credit loss that results from all default
events over the expected life of the instrument.
(yung mga chance na pwede talagang magdefault
si borrower. Ano ang expected life of the
instrument? Yan yung majority life or duration.
Kung 5 years napag usapan na babayaran. 5 years
yung expected life).
 Shall always be recognized for trade receivables
through aging (% of A/R or % of Sales), percentage
of accounts receivable and percentage of sales.
(yung lifetime expected credit loss ay required na
irecognized sa isang trade receivable.)

INTEREST INCOME
a. Under stage 1 and 2, interest income is computed
based on the gross carrying amount or face
amount. (example in page 214 and 215: 2,000,000
x 10%)
b. Under stage 3, interst income is computed based on
the net carrying amount which is equal to the face
amount minus allowance for loan impairment
 Net carrying amount = face amount less
allowance for impairment.
(example page :