Ia CH 6 & 7 NR LR 2020

RECEIVABLES
Notes and Loans

INTERMEDIATE ACCOUNTING I
CHAPTER 6 & 7
NOTES RECEIVABLE
Chapter 6
Notes Receivable
• claims supported by formal promises to pay usually in the form of
notes.
• the term “notes receivable” represents only claims arising from sale
of merchandise or service in the ordinary course of business.
• Thus, notes received from officers, employees, shareholders and
affiliates shall be designated separately.
Promissory Note
• A negotiable promissory note is an unconditional promise in writing
made by one person to another, signed by the maker, engaging to pay
on demand or at fixed determinable future time a sum certain in
money to order or to bearer.
• a written contract in which one person, known as the maker,
promises to pay another person, known as the payee, a definite sum
money.
Dishonored Notes
• When a promissory note matures and is not paid, it is said to be
dishonored.
• removed from the notes receivable account and transferred to
accounts receivable
• amount debited include the face amount, interest and other
charges`(penalty or fee)
• entry
Accounts receivable xx
Notes receivable xx
Interest income xx
Penalties / Fees xx
Initial Measurement
• Conceptually, notes receivable shall be measured initially at present
value.
• the sum of all future cash flows discounted using the prevailing
market rate of interest for similar notes.
• effective interest rate
• short-term notes receivable are measured at face value.
• Cash flows relating to short-term notes receivable are not
discounted because the effect of discounting is usually not
material.
Initial Measurement: Notes Receivable
• Interest bearing long-term notes
• measured at face value which is actually the present
value upon issuance.
• Non-interest bearing long term notes
• measured at present value which is discounted value of
the future cash flows using the effective interest rate.
• “interest being included in the face value” rather than
being stated as a separate rate.
Subsequent Measurement
• Long-term notes receivable shall be measured at amortized
cost using the effective interest method.
• Amortized cost is the amount at which the note receivable is
measured initially
1. minus principal repayment,
2. plus or minus the cumulative amortization of any difference
between the initial carrying amount and the principal
maturity amount
3. minus reduction for impairment or uncollectibility.
Subsequent Measurement
• For long-term non-interest bearing notes receivable, the
amortized cost is
1. the present value plus amortization of the discount, or
2. the face value minus the unamortized unearned interest
income
Illustration DATE ACCOUNT TITLE & EXPLANATION
YEAR 1
DEBIT CREDIT
• An entity owned a tract of land Jan 1 Note Receivable 1,000,000

costing P800,000 and sold the Land 800,000
Gain on sale of Land 200,000
land for P1, 000, 000. To record disposal of land
• The entity received a 3-year note
for P1,000,000 plus interest of Dec 31 Interest Receivable 120,000
12% compounded annually. Interest Income 120,000
To record accrued interest
• When interest is “compounded”, in (1,000,000 * 12%)
the mathematical parlance this means YEAR 2
that any accrued interest receivable Dec 31 Interest Receivable 134,400
also earns interest. Interest Income 134,400
• The selling price of P1, 000, 000 is To record accrued interest
reasonably assumed to be the present FACE VALUE 1,000,000
value of the note because the note is Interest accrued YR 1 120,000
interest bearing. COMPU TOTAL 1,120,000 * 12%
TATION Interest for Year 2 134,400
Journal Entry for Year 3 COLLECTION OF NOTE
DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT
Dec 31 Cash 1,404,928
Note Receivable 1,000,000
Interest Receivable 254,400
Interest Income 150,528
To record collection of note
Face value 1,000,000

Interest accrued:
Year 1 120,000
Year 2 134,400 254,400
Total 1,254,400
COMPU Interest for third year (12%) 150,528
TATION Cash receipt from note 1,404,928
DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT PROBLEM 6-1
2019 Sales Price 7,000,000
Jan 1 Cash 1,000,000 Cost of Land 5,000,000
Note Receivable 6,000,000 Gain on Sale 2,000,000
Land 5,000,000
Gain on sale of Land 2,000,000 Note Receivable (FACE) 6,000,000
To record sale of land STATED RATE 12%
Interest Income - 2019 720,000
Dec 31 Interest Receivable 720,000
2020
Dec 31 Interest Receivable 806,400 Note Receivable (FACE) 6,000,000
Interest Income 806,400 Interest Income - 2019 720,000
To record accrued interest TOTAL 6,720,000
2021 STATED RATE 12%
Jan 1 Cash 7,526,400 Interest Income - 2020 806,400
Note Receivable 6,000,000
Interest Receivable 1,526,400
To record collection of note
• An entity manufactures and sells Noninterest bearing note
machinery. On January 1, 2019, the (installment, ordinary course of business )
entity sold machinery costing
P280,000 for P400,000.
2019
• The buyer signed a noninterest Jan 1 Note Receivable 400,000
bearing note for P400,000, payable SALES 350,000
in four equal installments every Unearned Interest Income 50,000
December 31. The cash sale price of To record sales
the machinery is P350, 000.
COMPUTATION Cash
Dec 31 100,000
Face value of note 400,000 Note Receivable 100,000
Present value (CASH SALE PRICE) 350,000 To record collection of 1st installment
UNEARNED INTEREST 50,000
INCOME Dec 31 Unearned Interest Income ???
Interest Income ???
Cash Sale Price 350,000 To record amortization of interest
Cost of Machinery 280,000 AMORTIZATION TABLE (SCHEDULE)
GROSS PROFIT 70,000
Amortization Table (no interest rate)
*amortization will be based on the note receivable balance
Unearned Interest
Amount to be amortized?
Aid in preparation of Income P50,000
journal entries and PERIOD Note Rec FRACTION/RATE Interest Income
presentation of 2019 400, 000 40% 20, 000
financial statements 2020 300, 000 30% 15, 000
2021 200, 000 20% 10, 000
2022 100, 000 10% 5, 000
1,000, 000 50, 000
FRACTION or RATE like

RELATIVE SALES PRICE METHOD
• If a statement of financial PRESENTATION
position is prepared on Note receivable-current portion 100,000
December 31, 2019, Less: unearned interest income 15,000
• The current portion of Carrying amount or amortized cost 85,000
the note receivable is
classified as current Note receivable – noncurrent portion 200,000
Less: Unearned interest income 15,000
asset.
Carrying amount or amortized cost 185,000
• The noncurrent portion
of the note receivable is Note Receivable 300,000
classified as noncurrent Current Portion 100,000
asset. Noncurrent Portion 200,000
Total unearned interest income 50,000
Realized in 2019 20,000
Balance – Dec 31, 2019 30,000
Realizable in 2020-current portion 15,000
Realizable beyond 2020-noncurrent portion 15,000
• An entity manufactures and
2020
sells machinery. On January 1, Dec 31 Cash 100,000
2019, the entity sold Note Receivable 100,000
machinery costing P280,000 To record collection of 1st installment
for P400,000.
Dec 31 Unearned Interest Income 15,000
• The buyer signed a noninterest Interest Income 15,000
bearing note for P400,000, To record amortization of interest
payable in four equal
installments every December 2021
Dec 31 Cash 100,000
31. The cash sale price of the
Note Receivable 100,000
machinery is P350, 000. To record collection of 1st installment
Dec 31 Unearned Interest Income 10,000

To record amortization of interest
Noninterest bearing note (installment, not ordinary)
• On January 1, 2019, an entity sold equipment with a cost of P250,000
for P400,000.
• The buyer paid a down of P100,000 and signed a noninterest bearing
note for P300,000 payable in equal annual installment of P100,000
every December 31.
• NO CASH SALE PRICE
1. Compute the Present Value of the note (Cash Sale Price, if w/
down payment to be added)
2. Compute the unearned interest income (to be amortized)
3. Compute the GAIN/LOSS on sale (not ordinary)
PRESENT VALUE (FACE VALUE of the Note * PV Factor)
• LUMP SUM (one-time)
Present Value of 1 for _(n)_periods at _(i)_ %
Present Value of 1 for 3 periods at 10 %
PV FACTOR = ( 1 + i ) ^ -n i = interest (10%)
0.7513148 n = period (3 years)
• INSTALLMENT
Present Value of ordinary annuity of 1
PVF = 1 – (1 + i) ^ -n
for _(n)_ periods at _(i)_ % i
PV of ordinary annuity of 1
2.486851991
for 3 periods at 10 %
PRESENT VALUE (Installment Payment * PV Factor)
• The prevailing interest rate for a note of this type is 10%.
• The present value of an ordinary annuity of 1 for three periods at
10% is 2.4869.
Installment 100,000
Multiply by PV Factor 2.4869
Present Value of Note 248,690
Add: Down Payment 100,000
Sale Price 348,690
COMPUTATION
• unearned interest income and gain on sale of equipment
Face value of note 300,000
Present value of note 248,690
Unearned interest income 51,310
Sales price 348,690

Cost of equipment 250,000
Gain on sale of equipment 98,690
AMORTIZATION TABLE
Period Installment Interest Income Principal Present Value
Jan 1, 2019 10 % 248, 690
Dec 31, 2019 100, 000 24, 869 75, 131 173, 559
Dec 31, 2020 100, 000 17, 356 82, 644 90, 915
Dec 31, 2021 100, 000 9, 085 90, 915 0
TOTAL (CHECK) 300, 000 51, 310 248, 690
Interest Income = 248, 690 * 10% = 24,869

PV * Effective Rate (10%)
Principal =
100, 000 – 24,869 = 75,131
Instalment less Interest Income
PV-current =
PV-previous year less principal payment 248,690 – 75,131 = 173,559
Journal entries for 2019
• To record the sale of equipment:
Cash 100,000
Note receivable 300,000
Equipment 250,000
• To record the first installment collection:

Cash 100,000
Notes receivable 100,000
• To record the interest income for 2019:

Interest income 24,869
PRESENTATION – DEC 31, 2019
• Current Asset
Note receivable-current portion 100,000
Less: unearned interest income 17,356
• Noncurrent Asset
Note receivable – noncurrent portion 100,000
Noninterest bearing note (lump-sum, not ordinary) Computation
• On January 1, 2019, an entity Face of note 400, 000
sold an equipment costing
P600, 000 with accumulated Present value (400,000*0.7513) 300, 520
depreciation of P250, 000. The Unearned interest income 99, 480
entity received as consideration
P100, 000 cash and a P400, 000 • The unearned interest income is sometimes
noninterest-bearing notes due described as “discount on note receivable”
on January 1, 2019.
• The prevailing rate of interest Present value of note 300,520
for a note of this type is 10%.
• The present value of 1 at 10%
for 3 years is 0.7513. Sale price 400,520
• The note is collectible on a lump Carrying amount of equipment 350,000
sum basis after 3 years. (600, 000 – 250, 000)
Gain on sale 50,520
Amortization Period Interest Income Unearned Interest Present Value
Table Jan 1, 2019 300, 520
10 % 99, 480
Dec 31, 2019 30, 052 69, 428 330, 572
Dec 31, 2020 33, 057 36, 371 363, 629
Dec 31, 2021 36, 371 0 400, 000
TOTAL (CHECK) 99, 480
Interest Income =
PV * Effective Rate (10%) 300, 520 * 10% = 30,052
Unearned Interest =
99,480 – 30,052 = 69,428
Previous less Interest Income
PV-current =
PV-previous year plus interest income 300,520 + 30,052 = 330,572
Face Value less unearned interest (current)
Journal entries - 2019
Jan. 1 Cash 100,000
Accumulated depreciation 250,000
Equipment 600,000
To record sale
Dec. 31 unearned interest income 30,052

PRESENTATION – DEC 31, 2019
• Noncurrent Asset
Journal entries – 2020, 2021, 2022
2020
Dec. 31 Unearned interest income 33,057
2021
2022
Jan 1 Cash 400,000
Notes Receivable 400,000
To record collection
DEMONSTRATION PROBLEM
PROBLEM INFO: (DEMO PROB 1) ANALYSIS
• Persevere Company is a dealer in • Use of “SALES” account
equipment. • No CASH SALE PRICE
Regular/Ordinary Business Activity • Present Value of Note including
down payment
• On December 31, 2016, the entity sold • PRESENT VALUE OF NOTE
an equipment in exchange for a
noninterest bearing note requiring • PV of Ordinary Annuity of 1
five annual payments of P500,000. The • Effective Rate of Interest
first payment was made on December COMPUTATION:
31, 2017. NO DOWN PAYMENT Annual Payment 500,000
• The market interest for similar notes was Multiply by PV FACTOR 3.9927
8%. PV of an Ordinary Annuity Present Value SALES PRICE 1,996,350
REQUIRED: of 1 at 8% for 5 periods
• Prepare journal entries (all) FORMULA: 8% for 5 periods
• Prepare an amortization table PVF = 1 – (1 + i) ^ -n PVF = 1 – (1.08) ^ -5
i 0.08
and necessary computations.
PV OA = 3.9927
COMPUTATION: AMORTIZATION TABLE
Face Value of Note 2,500,000 Will help in preparation of journal entries and
(500,000 * 5) presentation of financial statements
Present Value of Note 1,996,350
PERSEVERE COMPANY - AMORTIZATION SCHEDULE
Unearned Interest
503, 650 Period Installment Interest Income Principal Present Value
Income
Dec 31, 2016 8% 1, 996, 350
No need to compute GAIN ON SALE Dec 31, 2017 500, 000 159, 708 1, 996, 340,350
292* 8%
1, 656, 058
because ORDINARY business
Dec 31, 2018 500, 000 132, 485 367, 515 1, 288, 543
activities (GROSS PROFIT)
Dec 31, 2019 500, 000 103, 083 396, 917 891, 626
Interest Income = PV * Eff. Rate (8%)
Dec 31, 2020 500, 000 71, 330 428, 670 462, 956
Principal = Instalment less Int. Inc.
Dec 31, 2021 500, 000 37, 044 462, 956 0
PV-current = PV-prev. year less
principal payment TOTAL (CHECK) 2, 500, 000 503,
500,000 650 1, 996, 350
– 462,956
PRESENTATION – Dec 31, 2017
CURRENT ASSET NONCURRENT ASSET
Note Receivable – current portion 500,000 Note Receivable – noncurrent portion 1,500,000
Less: Unearned Interest Income 132,485 Less: Unearned Interest Income 211,457
Carrying Amount 367,515 Carrying Amount 1,288,543
Journal entries for 2016 & 2017
2016
Dec 31 Note receivable 2,500,000
Sales 1,996,350
To record the sales
2017
Dec 31 Cash 500,000
To record the first installment collection
31 Unearned interest income 159,708
To record interest income
2018
Dec 31 Cash 500,000
To record the second installment collection
2019
Dec 31 Cash 500,000
To record the third installment collection
2020
Dec 31 Cash 500,000
To record the fourth installment collection
2021
Dec 31 Cash 500,000
To record the fifth installment collection
PROBLEM INFO: (DEMO PROB 2) ANALYSIS
• On January 1, 2016, Allure Company sold • Disposal (not “sales”)
an equipment with a carrying amount of • Non-interest bearing (interest
P800,000, receiving a noninterest-bearing included)
note due in three years with a face
• PRESENT VALUE OF NOTE
amount of P1,000,000. Not Ordinary
• PV of 1
LUMP SUM Business Activity
• Effective Rate of Interest
• There is no established market value for
COMPUTATION:
the equipment. The interest rate on
Face Value of Note 1,000,000
similar obligations is estimated at 12%.
Multiply by PV FACTOR 0.7118
PV of 1 at 12% for 3 periods Present Value 711, 800
REQUIRED: SALES PRICE
FORMULA: 12% for 3 periods
• Prepare journal entries (all)
PVF = (1 + i) ^ -n PVF = (1.12) ^ -3
• Prepare an amortization table and PV Factor = 0.7118
necessary computations.
COMPUTATION:
ALLURE COMPANY - AMORTIZATION SCHEDULE
Present Value of Note 711,800
Unearned Interest Income 288, 200 Period Interest Income Unearned Interest Present Value
Jan 1, 2016 12 % 288, 200 711, 800
Dec 31, 2016 85, 416 202, 784 797, 216
Present Value of Note 711,800 Dec 31, 2017 95, 666 107, 118 892, 882
Carrying Amount – EQMT 800,000 Dec 31, 2018 107,118 0 1,000, 000
Gain (Loss) on sale of (88, 200) TOTAL (CHECK) 288,200
equipment
Interest Income = 711, 800 * 12% = 85,416
PRESENTATION – Dec 31, 2016 PV * Effective Rate (12%)
NONCURRENT ASSET Unearned Interest = 288,200 – 85,416 = 202,784
Note Receivable 1,000,000 Previous less Interest Income
Less: Unearned Interest Income 202,784 PV-current = 1,000,000 – 202,784 = 797,216
Carrying Amount-Dec 31, 2016 797,216 Face Value less unearned interest (current)
PV-previous year plus interest income
Journal entries - 2016
Jan. 1 Note receivable 1,000,000
Loss on sale of equipment 88,200
Equipment 800,000
To record sale
Dec. 31 unearned interest income 85,416

Journal entries – 2017, 2018, 2019
2017
2018
2019
Jan 1 Cash 1,000,000
Notes Receivable 1,000,000
ADDITIONAL ACTIVITY
• On January 1, 2017, Further Company sold for
P3,000,000 an old equipment having an original cost of
P5,200,000 and carrying amount of P1,600,000.
• The terms of sale were P600,000 down payment and
P300,000 payable every December 31 from 2017 to
2024.
• The sale agreement made no mention of interest.
However 9% would be a fair rate for this type of
transaction.
1. Compute the present value of the note, unearned interest income,
and gain/loss on sale
2. Prepare an amortization table.
Further Co - AMORTIZATION SCHEDULE
Jan 1, 2017
Dec 31, 2017
Dec 31, 2018
Dec 31, 2019
Dec 31, 2020
Dec 31, 2021
Dec 31, 2022
Dec 31, 2023
Dec 31, 2024
3. Prepare all journal entries

LOAN RECEIVABLE
CHAPTER 7
LOAN RECEIVABLE
• A loan receivable is a financial asset arising from a loan
granted by bank or other financial institution to a borrower
or client.
• The term of the loan may be short-term but in most cases,

the repayment periods cover several years (long-term).
Initial measurement of loan receivable
• At initial recognition, an entity shall measure a loan receivable at
fair value plus transaction costs that are directly attributable to
the acquisition of the financial asset.
• The fair value of the loan receivable at initial recognition is the
transaction price, meaning, the amount of the loan granted.
• Transaction costs that are directly attributed to the loan
receivable include direct origination cost.
• Direct origination costs should be included in the initial
measurement of the loan receivable.
• Indirect origination costs should be treated as outright expense.
Subsequent measurement of loan receivable
• PFRS 9, paragraph 4.1.2, provides
• if the business model in managing financial asset is to
collect contractual cash flows on specific dates and the
contractual cash flows are solely payments of principal
and interest, the financial asset shall be measured at
amortized cost.
• Accordingly, a loan receivable is measured at amortized cost

using the effective interest method.
• The “amortized cost” is the amount at which the loan receivable is
measured initially
1. minus principal repayment,
2. plus or minus the cumulative amortization of any difference between
the initial carrying amount recognized and the principal maturity
amount,
3. minus reduction for impairment or uncollectibility
• If the initial amount recognized is lower than the principal

amount, the amortization of the difference is added to the
carrying amount.
• If the initial amount recognized is higher than the principal
amount, the amortization of the difference is deducted from the
carrying amount.
Origination fees
• Lending activities usually precede the actual disbursement of funds and
generally include efforts to identify and attract potential borrowers and to
originate a loan.
• The fees charged by the bank against the borrower for the creation of the
loan are known as “origination fees”.
• Origination fees include compensation for the following activities:
a. evaluating the borrower’s financial condition,
b. evaluating guarantees, collateral and other security,
c. negotiating the terms of the loan,
d. preparing and processing documents related to the loan
e. closing and approving the loan transaction.
Accounting for Origination Fees
• The origination fees received from borrower are recognized as
unearned interest income and amortized over the term of the
loan.
• If the origination fees are not chargeable against the borrower,
the fees are known as “direct origination costs”.
• The direct origination costs 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.
Accounting for Origination Fees
• 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.
• Accordingly, the origination fees received and the direct
origination costs are included in the measurement of the loan
receivable.
Illustration
• Global Bank granted a loan to a borrower on January 1, 2019. The interest
on the loan is 12% payable annually starting December 31, 2016. The loan
matures in three years on December 31, 2021. The other data related to the
loan are:
Principal amount 5,000,000
UNEARNED
Origination fees received from borrower 331,800
INTEREST
Direct origination costs incurred 100,000 INCOME
231,800 (amount to be amortized)
• The initial carrying amount of the loan is computed as follows:
Principal amount 5,000,000 PRINCIPAL is MORE THAN
Origination fees received (331,800) CARRYING AMOUNT
Direct origination costs incurred 100,000 Amortization is ADDED to the
Initial carrying amount 4,768,200 carrying amount.
Journal entries on January 1, 2019
• To record the loan:
Loan receivable 5,000,000
Cash 5,000,000
• To record the origination fees received from the borrower:

Cash 331,800
• To record the direct origination costs incurred by the bank:

Cash 100,000
INTERPOLATION APPROACH
• The unearned interest income has credit balance of P231,
800 to be amortized over the term of the loan using the
effective interest method.
• Because of the origination fees received and the direct

origination costs, a new effective rate must be computed.
• The effective rate is computed through the “trial and error:

or “interpolation” approach.
INTERPOLATION APPROACH
• Since the initial carrying amount of the loan receivable of P4,
768, 200 is lower than the principal amount (P5, 000,000),
• there is a discount
• the effective rate must be higher than the nominal rate of
12%
• The effective rate is the rate that would equate the present
value of the future cash flows of the loan to the initial carrying
amount of the loan receivable.
INTERPOLATION APPROACH (TRIAL & ERROR)
• Using an effective rate of 13% (TRIAL #1),
• the present value of 1 for three periods is 0.693
• the present value of an ordinary annuity of 1 for three periods is 2.361
• Accordingly, the present value of the cash flow is determined as follows:
PV of principal (5, 000, 000 x 0.693) 3,465,000
PV of interest (600, 000 x 2.361) 1,416,600
Total present value of cash flows 4,881,600
• The initial carrying amount of P4, 768, 200 is still lower than P4,881,600.
This means the effective rate is higher than 13%.
INTERPOLATION APPROACH (TRIAL & ERROR)
• Using an effective rate of P14%, (TRIAL #2),
• the present value of 1 for three periods is 0.675
• the present value of an ordinary annuity of 1 for three periods is 2,322
• The present value of the cash flows is computed as follows:
PV of principal (5, 000, 000 x 0.675) 3,375,000
PV of interest (600, 000 x 2.322) 1,393,200
• The initial carrying amount of P4, 768, 200 is now the same as the
present value of the cash flows. Thus, the effective rate is 14%.
• In practice, the effective rate is easily determined through the use of a
financial calculator. Observe the following process:
1. Enter negative P5, 000, 000 (cash flow for the principal) and press FV
2. Enter negative P600, 000 (cash flow for interest) and press PMT
3. Enter 3 (maturity) and press N
4. Enter positive P4, 768, 200 (initial carrying amount) and press PV
5. Press comp (compute) and i% (effective rate)
6. Press EXE (execute)
7. The financial calculator will yield a 14% effective rate.
AMORTIZATION TABLE – Effective Interest Method
GLOBAL BANK - AMORTIZATION SCHEUDLE
Interest Interest Carrying
DATE Amortization
Received Income Amount
( ADD )
Jan 1, 2019 12 % 14 % 4, 768, 200
Dec 31, 2019 600, 000 667, 548 67, 548 4, 835, 748
Dec 31, 2020 600, 000 677, 005 77, 005 4, 912, 753
Dec 31, 2021 600, 000 687, 247 87, 247 5, 000, 000
600,000 + 87,247 5,000,000 – 4,912,753
Interest Received = Principal * Nominal Rate 5,000,000 * 12% = 600,000
Interest Income = Carrying Amount * Effective Rate 4,768,200 * 14% = 667,548
Amortization = Interest Income less Interest Received 667,548 – 600,000 = 67,548
Carrying Amount = Previous CA plus Amortization 4,768,200 + 67,548 = 4,835,748
EFFECTIVE INTEREST METHOD
• Under the effective interest method, the following formulas are necessary:
Interest received = Principal times nominal rate
Interest income = Carrying amount times effective rate
• December 31, 2019

Interest received (5, 000,000 x 12%) 600,000
Interest income (4, 768, 200 x 14%) 667,548
Amortization 67,548
Carrying amount – January 1, 2019 4,768,200
Carrying amount – December 31, 2019 4,835,748
Interest received 600,000
Intrerest income (4, 835, 748 x 14%) 677,005
Amortization 77,005

Interest received 600,000
Amortization 87,247
• Journal entries on December 31, 2019
Cash 600,000
To record collection of interest

To record amortization
• STATEMENT PRESENTATION on December 31, 2019,
Unearned interest income (231, 800 – 67, 548) ( 164,252)
• The presentation is in accordance with the standard requirement that a loan
receivable is measured at amortized cost. The carrying amount is actually the
amortized cost.
Cash 600,000


Cash 600,000

Cash 5,000,000
To record collection of loan
( DEDUCT )
12 % 10 % 4,303,000
480,000 430,300 49,700 4,253,300
480,000 425,330 54,670 4,198,630
480,000 419,863 60,137 4,138,493
EXPENSE 480,000 413,849 66,151 4,072,342
480,000 407,658 72,342 4,000,000
DIRECT ORIGNATION COST

Principal is less than Carrying Amount
(303,000 4,000,000
Loan Receivable 4,000,000 ADD: Direct Origination Cost – 49,700) 253,300
Direct Origination Cost 423,000 Carrying Amount - Dec 31, 2019 4,253,300
Origination Fee - Borrower (120,000)
Initial Carrying Amount 4,303,000 4,303,000
LESS: Amortization - 2019 49,700
Carrying Amount - Dec 31, 2019 4,253,300
2019
Jan 1 Loan Receivable 4,000,000
Cash 4,000,000
To record grant of loan
Loan Receivable 4,000,000
1 Direct Origination cost 423,000 Direct Origination Cost 423,000
Cash 423,000
Origination Fee - Borrower (120,000)
To record incurred cost
Initial Carrying Amount 4,303,000
1 Cash 120,000
Direct Origination Cost 120,000
To record fee received from borrower
1 Indirect Costs (Expense) 50,000
Cash 50,000
To record payment of indirect costs
2019 Loan Receivable (FACE) 4,000,000
Dec 31 Cash 480,000 NOMINAL RATE 12%
Interest Income 480,000 Interest Received 480,000
Carrying Amount (LOAN) 4,303,000
Dec 31 Interest Income 49,700 EFFECTIVE RATE 10%
Direct Origination Cost 49,700 Interest Income - 2019 430,300
To record amortization of direct cost
Less: Interest Received 480,000
2020 Amortization - 2019 (49,700)
Dec 31 Cash 480,000
To record collection of interest Interest Received 480,000
Less: Interest Income - 2020
Dec 31 Interest Income 54,670 C.A. – Dec 31, 2019 4,253,300
Direct Origination Cost 54,670 EFFECTIVE RATE 10% 425,330
To record amortization of direct cost Amortization - 2020 54,670
2021
Dec 31 Cash 480,000 Interest Received
Interest Income 480,000 4,000,000 * 12% 480,000
To record collection of interest Interest Income - 2021
4,198,630 * 10% 419,863
Dec 31 Interest Income 60,137 Amortization - 2021 60,137
2022
Dec 31 Cash 480,000
Dec 31 Interest Income 66,151

2023
Dec 31 Cash 480,000
Dec 31 Interest Income 72,342

Dec 31 Cash 4,000,000

To record collection of loan
IMPAIRMENT OF LOAN
Impairment of loan
• PFRS 9, paragraph 5.5.1, provides that an entity shall recognize a
loss allowance for expected credit losses on financial asset
measured at amortized cost.
• Paragraph 5.5.3 provides that an entity shall measure the loss
allowance for financial instrument at an amount equal to the
lifetime expected credit losses if the credit risk on that financial
instrument has increased significantly since initial recognition.
• Credit losses are the present value of all cash shortfalls.
• Expected credit losses are an estimate of credit losses over the
life of the financial instrument.
Measurement of impairment
• When measuring expected credit losses, an entity should

consider:
1. The probability-weighted outcome. The estimate should reflect
the possibility that a credit loss occurs and the possibility that
no credit loss occurs.
2. The time value of money. The expected credit losses should be
discounted
3. Reasonable and supportable information that is available
without undue cost or effort.
Measurement of impairment
• PFRS 9 does not prescribe particular method of measuring expected
credit losses.
• An entity may use various sources of data both internal or entity-
specific and external in measuring expected credit losses.
• The amount of impairment loss can be measured as the difference
between the carrying amount and the present value of estimated
future cash flows discounted at the original effective rate.
• The carrying amount of the loan receivable shall be reduce either
directly or through use of an allowance account.
Meaning of Credit Risk
• 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.
• The risk contemplated is the risk that the issuer will fail to perform a
particular obligation.
• The risk does not necessarily relate to the credit worthiness of the
issuer.
• For example, if an entity issued a collateralized liability and
noncollateralized liability that are otherwise identical, the credit
risk of the two liabilities will be different.
• The credit risk of the collateralized liability is surely less than the
credit risk of the noncollateralized liability.
• The credit risk for a collateralized liability may be zero.
• Illustration 2014
• International Bank Jan 1 Loan Receivable 5,000,000
loaned P5, 000, 000 to Cash 5,000,000
Bankard Company on Jan To record loan to borrower
1, 2014.
• The terms of the loan Dec 31 Cash 1,500,000
require principal
payment of P1, 000, 000 Loan Receivable 1,000,000
each for 5 years plus Interest Income 500,000
interest at 10%. To record collection of principal and interest
• The first principal and Interest = 5,000,000 * 10% = 500,000
interest payment is due 2015
on December 31, 2014. Dec 31 Cash 1,400,000
Bankard Company made Loan Receivable 1,000,000
the required payments Interest Income 400,000
on December 31, 2014
and December 31, 2015. To record collection of principal and interest
Interest = 4,000,000 * 10% = 400,000
• Illustration (continuation)
• However during 2016, Bankard Company began to experience
financial difficulties and was unable to make the required
principal and interest payment on December 31, 2016.
• On December 31, 2016, International Bank assessed the

collectibility of the loan and has determined that the remaining
principal payments will be collected but the collection of the
interest is unlikely.
• The loan receivable has carrying amount of P3, 300, 000 including the accrued
interest of P300, 000 on December 31, 2016.
• International Bank projected the cash flows from the loan on December 31, 2016
as follows:
Date of Cash Flow Amount Projected
Dec 31, 2017 500,000
Dec 31, 2018 1,000,000
Dec 31, 2019 1,500,000
Using the original effective rate of 10%, the present value of 1 is .9091 for one
period, .8264 for two periods and .7513 for three periods.
• Present Value of the Cash Flows (Computation)

Dec 31, 2017 ( 500,000 * .9091) 454,550
Dec 31, 2018 (1,000,000 * .8264) 826,400
Dec 31, 2019 (1,500,000 * .7531) 1,126,950
• Computation of Impairment Loss
• The impairment loss is the difference between the carrying amount of the loan
and the present value of cash flows.
Carrying Amount of the loan 3,300,000
Present Value of cash flows 2,407,900
Impairment Loss 892,100
• Journal entry on December 31, 2016

Loan Impairment Loss 892,100
Accrued Interest Receivable 300,000
Allowance for Loan Impairment 592,100
To recognized impairment loss
• The accrued interest receivable is credited directly because the collection of
interest is unlikely.
• Statement Presentation on December 31, 2016

Allowance for Loan Impairment (592,100)
Carrying Amount 2,407,900
• To record the cash collection:
Cash 500,000
Loan receivable 500,000
• To record the interest income using the effective interest method:

Allowance for loan impairment 240,790
• The interest income is computed by multiplying the carrying amount of the loan
by the effective rate. Thus, P2, 407, 900 times 10% equals P240, 790. (can also
prepare an amortization table for 2 periods)
• Note that the recognition of interest income is charged against the allowance for
loan impairment account
• To record the cash collection:
Cash 1,000,000
• To record the interest income:

Loan receivable – December 31, 2017 2,500,000

Allowance for loan impairment (592, 100 – 240, 790) (351,310)
Interest income for 2018 (10% x 2, 148, 690) 214,869

• To record cash collection:
Cash 1,500,000
• To record the interest income


Allowance for loan impairment (351, 310 – 214, 869) (136,441)
Interest income for 2015 (10% x 1,363,559) 136,356

• There is a difference between of P85 between P136,441 and P136, 356 due to rounding
of present value factors.
• Another illustration
• Urban Bank granted a loan of P3, 000, 000 to a
borrower on January 1, 2016. The terms of the loan
were payment in full on December 31, 2021 plus
annual interest payment at 8% every December 31. The
first interest payment was made on December 31, 2016.
• However, on December 31, 2016 due to financial
difficulties, the borrower informed Urban Bank that it
probably would miss the interest payments for the next
two years. After that, the borrower expects to resume
the annual interest payment but the principal would be
paid on December 31, 2022 or one year later with
interest paid for that additional year.
• Schedule of Payments from the borrower
Dec 31, 2017 No interest payment 0
Dec 31, 2018 No interest payment 0
Dec 31, 2019 Interest payment (8% x P3, 000, 000) 240, 000
Dec 31, 2020 Interest payment 240, 000
Principal payment 3, 000, 000
• Using the original effective interest rate of 8%, the present value of 1 is
.794 for three periods, .735 for four periods, .681 for five periods, and .630
for six periods.
• COMPUTATION (Present Value, Carrying Amount, Impairment Loss)
• The present value of the future interest and principal payments
December 31, 2015 (240, 000 x .794) 190, 560
December 31, 2016 (240, 000 x .735) 176, 400
December 31, 2017 (240, 000 x .681) 163, 440
December 31, 2018 (3, 240, 000 x .630) 2, 041, 200
Total present value of loan 2, 571, 600
Carrying amount of loan equal to principal only because

there is no accrued interest on December 31, 2016 3, 000, 000
Present value of loan 2, 571, 600
Impairment loss 428, 400
• Journal entries for 2016
• Jan. 1 Loan receivable 3,000,000
Cash 3,000,000
To record grant of loan
• Dec. 31 Cash 240,000

31 Loan Impairment Loss 428,400

To recognize impairment loss
• 2017
Dec. 31 Allowance for loan impairment 205,728
Interest income(8% x 2, 571, 600) 205,728
To record amortization of loan impairment
• 2018
Dec. 31 Allowance for loan impairment 222,672
To record amortization of loan impairment
Allowance for loan impairment (428, 400 – 205, 728) ( 222,672)
• 8% times P2, 777, 328 equals P222, 186 or a difference of P486 due to rounding of present value
factors .
• Note that the allowance for loan impairment is amortized only over two years, 2017 and 20184,
because it is during these years that the borrower made a default.
• 2019
Dec. 31 Cash 240,000
• 2020
Dec. 31 Cash 240,000
• 2021
Dec. 31 Cash 240,000
• 2022
Dec. 31 Cash 3,240,000
To record collection of interest and principal
Problem 13 - 5
• Solvent Bank loaned P10,000,000 to a borrower on January 1, 2014. The terms of
the loan require principal payments of P2,000,000 each year for 5 years plus
interest at 8%.
• The first principal and interest payment is due on December 31, 2014. The
borrower made the required payments on December 31, 2014 and December 31,
2015.
• However, during 2016 the borrower began to experience financial difficulties,
requiring the bank to reassess the collectability of the loan.
• On December 31, 2016, the bank has determined that the remaining principal
payment will be collected but the collection of the interest is unlikely. The bank
has accrued the interest for 2016.
• The present value of 1 at 8% is as follows:
For one period 0.93
For two periods 0.86
For three periods 0.79
JOURNAL ENTRIES (Separate sheet)
• Solvent Bank loaned
P10,000,000 to a borrower on 2014
January 1, 2014. The terms of Jan 1 Loan Receivable 10,000,000
the loan require principal Cash 10,000,000
payments of P2,000,000 each To record loan to borrower
year for 5 years plus interest
at 8%. Dec 31 Cash 2,800,000
• The first principal and interest To record collection of principal and interest
payment is due on December Interest = 10,000,000 * 8% = 800,000
31, 2014. The borrower made 2015
the required payments on Dec 31 Cash 2,640,000
December 31, 2014 and Loan Receivable 2,000,000
December 31, 2015. Interest Income 640,000
To record collection of principal and interest
Interest = 8,000,000 * 10% = 640,000
• However, during 2016 the
borrower began to experience Present Value of Loan
financial difficulties, requiring Dec 31, 2017 1, 000, 000 0.93 930, 000
the bank to reassess the
collectability of the loan. Dec 31, 2018 2, 000, 000 0.86 1,720, 000
• On December 31, 2016, the bank Dec 31, 2017 3, 000, 000 0.79 2,370, 000
has determined that the Present Value of Loan 5,020, 000
remaining principal payment will
be collected but the collection of
the interest is unlikely. The bank Impairment Loss
has accrued the interest for Loan Receivable – Dec 31, 2016 6,000, 000
2016. Accrued Interest – Dec 31, 2016
• The present value of 1 at 8% is as 6,000,000 * 8% 480, 000
follows:
Total Carrying Amount 6,480, 000
For one period 0.93 Present Value of Loan 5,020, 000
For two periods 0.86 Impairment Loss 1,460, 000
For three periods 0.79
SOLVENT BANK - AMORTIZATION SCHEUDLE
DATE Payments Interest Income Principal Present Value
Dec 31, 2016 8% 5, 020, 000
Dec 31, 2017 1,000, 000 401, 600 598, 400 4, 421, 600
Dec 31, 2018 2,000, 000 353, 728 1,646, 272 2, 775, 328
Dec 31, 2019 3,000, 000 224, 672 2,775, 328 0
3,000,000 – 2,775,328
Interest Income = Carrying * Effective Rate 5,020,000 * 8% = 401,600

Principal = Payments less Interest Income 1,000,000 – 401,600 = 598,400
Present Value = Previous PV less Principal 5,020,000 – 598,400 = 4,421,600
2016
JOURNAL Dec 31 Accrued Interest Receivable 480,000

ENTRIES Interest Income 480,000
Dec 31, 2016 To record accrued interest
31 Impairment loss 1,460,000

Accrued Interest Receivable 480,000
To record loan impairment loss
PRESENTATION - Dec 31, 2016

Allowance for loan impairment ( 980,000)
2017
JOURNAL
ENTRIES Dec 31 Cash 1,000,000
Dec 31, 2017 Loan Receivable 1,000,000
31 Allowance for Loan Impairment 401,600

To record amortization of allowance
PRESENTATION - Dec 31, 2017

Allowance for loan impairment (980,000 – 401,600) ( 578,400)
2018
Dec 31 Cash 2,000,000

Alternative Computation - interest income, Dec 31, 2018

Loan Receivable – Dec 31, 2017 5, 000, 000
Allowance for Loan Impairment
Initial Balance – 12/31/16 980, 000
Less: Amortization – 2017 401, 600 578, 400
Loan Receivable – carrying amount 12/31/17 4, 421, 600
Interest Income - 2018 4,421,600 * 8% 353, 728

2019
Dec 31 Cash 3,000,000

Problem 13 - 12
• Oblation Bank loaned P9,000,000 to a borrower on January 1, 2014. The terms of
the loan were payment in full on January 1, 2019 plus annual interest payment at
12%. The interest payment was made as scheduled on January 1, 2015.
• However, due to financial setbacks, Boracay Company was unable to make the
2016 interest payment.
• The bank considered the loan impaired and projected the cash flows from the
loan on December 31, 2016. The bank accrued the interest on December 31,
2015, but did not continue to accrue interest for 2016 due to the impairment of
the loan. The projected cash flows are:
Date of cash flow Amount projected on December 31, 2016
December 31, 2017 1,500,000
December 31, 2018 2,000,000
December 31, 2019 2,500,000
December 31, 2020 3,000,000
• The PV of 1 at 12% is 0.89 for one period, 0.80 for two periods, 0.71 for three
periods and 0.64 for four periods.
PROBLEM 13-12
Present Value of Loan OBLATION BANK - AMORTIZATION SCHEUDLE
DATE Payments Interest Income Principal Present Value
Dec 31, 2016
Dec 31, 2017
Dec 31, 2018
Dec 31, 2019
Impairment Loss Dec 31, 2020
(All journal entries in a separate sheet)

PROBLEM 13-12 OBLATION BANK
1 Dec 31, 2017 1,500,000 0.89 1,335,000
Dec 31, 2018 2,000,000 0.80 1,600,000
Dec 31, 2019 2,500,000 0.71 1,775,000
Dec 31, 2020 3,000,000 0.64 1,920,000
Present Value of Loan 6,630,000
2 Loan Receivable - 12/31/16 9,000,000

Accrued interest (2015) 12% 9,000,000 1,080,000
Total Carrying Amount 10,080,000
Present Value of Loan 6,630,000
Impairment Loss 3,450,000
OBLATION BANK - AMORTIZATION SCHEUDLE
Interest Present
DATE Payments Income Principal Value
Dec 31, 2016 12% 6,630,000
Dec 31, 2017 1,500,000 795,600 704,400 5,925,600
Dec 31, 2018 2,000,000 711,072 1,288,928 4,636,672
Dec 31, 2019 2,500,000 556,401 1,943,599 2,693,073
Dec 31, 2020 3,000,000 306,927 2,693,073 0
2014 2017
Jan 1 Loan Receivable 9,000,000 Dec 31 Cash 1,500,000
Cash 9,000,000 Loan Receivable 1,500,000
To record loan to borrower

Dec 31 Interest Receivable 1,080,000 Interest Income 795,600
Interest Income 1,080,000 To record amortization of allowance
2015 2018
Jan 1 Cash 1,080,000 Dec 31 Cash 2,000,000
Interest Receivable 1,080,000 Loan Receivable 2,000,000

Dec 31 Interest Receivable 1,080,000
Interest Income 1,080,000 To record amortization of allowance
Loan Receivable - 12/31/17 7,500,000
2016 Allowance for Loan Impairment
Dec 31 Impairment loss 3,450,000 Initial balance 2,370,000
Accrued Interest Receivable 1,080,000 Amortization - 2017 795,600 1,574,400
Carrying Amount - 12/31/13 5,925,600
Allowance for Loan Impairment 2,370,000
Multiply by 12%
To record loan impairment loss
2019
Dec 31 Cash 2,500,000

Loan Receivable - 12/31/18 5,500,000

Allowance for Loan Impairment
Balance - 12/31/18 1,574,400
Amortization - 2018 711,072 863,328
Carrying Amount - 12/31/13 4,636,672
Multiply by 12%
2020
Dec 31 Cash 3,000,000

END…
END…
Full Amount 3,000,000
Down Payment 600,000
Instalment 300,000
PV of OA for 8 PERIODS 5.5348
Present Value 1,660,440
Sale Price 2,260,440
Carrying Amount - Equipment 1,600,000
Gain on Sale of Equipment 660,440

Present Value 1,660,440
Unearned interest Income 739,560
Further Co - AMORTIZATION SCHEDULE
Jan 1, 2017 9% 1,660,440
Dec 31, 2017 300,000 149,440 150,560 1,509,880
Dec 31, 2018 300,000 135,889 164,111 1,345,769
Dec 31, 2019 300,000 121,119 178,881 1,166,888
Dec 31, 2020 300,000 105,020 194,980 971,908
Dec 31, 2021 300,000 87,472 212,528 759,380
Dec 31, 2022 300,000 68,344 231,656 527,724
Dec 31, 2023 300,000 47,495 252,505 275,219
Dec 31, 2024 300,000 24,781 275,219 0
PROBLEM 13-2
• Awesome Bank granted a loan to a borrower on January 1, 2016. The
interest rate on the loan is 10% payable annually starting December
31, 2016. The loan matures in five years on December 31, 2020.
Principal amount 4,000,000 Same as
Direct origination cost 61,500 book
Origination fee received from borrower 350,000 illustration
• The effective rate of the loan after considering the direct origination
cost and origination fee received is 12%.
• The nominal rate (10%) is lower than the effective rate (12%)
PROBLEM 13-3
• Pauper Bank granted a loan to a borrower on January 1, 2016. The
interest rate on the loan is 8% payable annually starting December 31,
2016. The loan matures in three years on December 31, 2018.
Principal amount 3,000,000
Direct origination cost 260,300 DIRECT
ORIGINATION
Origination fee received from borrower 100,000 COST
PRINCIPAL is LESS THAN Amortization is DEDUCTED 160,300 (amount to
CARRYING AMOUNT from the carrying amount. be amortized)
• The effective rate of the loan after considering the direct origination cost
and origination fee received is 6%.
• The nominal rate (8%) is higher than the effective rate (6%)
Compute the Initial Carrying Amount of the Loan
Loan Receivable 3, 000, 000
Direct Origination Cost 260, 300
Origination fee charged to borrower ( 100, 000)
Initial Carrying Amount 3, 160, 300
• Initial Carrying (3,160,300) amount EXCEEDS Principal Amount (3,000,000)

• Direct Origination Cost (Prepaid Account) account will be used and the
excess is to be amortized as a decrease in INTEREST INCOME (interest
received) every end of the period.
• The amortization will decrease the initial carrying amount and will equal the
principal amount of 3,000,000 at the end of three years.
PAUPER BANK - AMORTIZATION SCHEUDLE
Interest Interest Carrying
DATE Amortization
Received Income Amount
Jan 1, 2016 8% 6% 3, 160, 300
Dec 31, 2016 240, 000 189, 618 50, 382 3, 109, 918
Dec 31, 2017 240, 000 186, 595 53, 405 3, 056, 513
Dec 31, 2018 240, 000 183, 487 56, 513 3, 000, 000
240,000 – 56,5137 3,056,513 – 3,000,000
Interest Received = Principal * Nominal Rate 3,000,000 * 8% = 240,000

Interest Income = Carrying Amount * Effective Rate 3,160,130 * 6% = 189,618
Amortization = Interest Received less Interest Income 240,000 – 189,618 = 50,382

Carrying Amount = Previous CA less Amortization 3,160,300 – 50,382 = 3,109,918
Journal entries on January 1, 2016
• To record the loan:
Cash 3,000,000
• To record the origination fees received from the borrower:

Cash 100,000
• To record the direct origination costs incurred by the bank:

Cash 260,300
Journal entries on December 31, 2016
2016
Dec 31 Cash 240,000
31 Interest Income 50,382

Direct origination Cost 50,382
To amortized direct origination cost
STATEMENT PRESENTATION Dec 31, 2016
Loan Receivable – Principal Amount 3, 000, 000
ADD: Direct origination cost (unamortized) 109, 918
Loan Receivable - Carrying Amount Dec 31, 2016 3, 109, 918
OR
Loan Receivable – Initial Carrying Amount 3, 160, 300
LESS: Amortization of Prepaid Cost-2016 50, 382
Loan Receivable - Carrying Amount Dec 31, 2016 3, 109, 918
2017
Dec 31 Cash 240,000

2018
Dec 31 Cash 3,240,000
To record collection of principal and interest


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RECEIVABLES

Notes and Loans

• An entity owned a tract of land Jan 1 Note Receivable 1,000,000

Face value 1,000,000

FRACTION or RATE like

Dec 31 Unearned Interest Income 10,000

Sales price 348,690

Interest Income = 248, 690 * 10% = 24,869

• To record the first installment collection:

• To record the interest income for 2019:

Dec. 31 unearned interest income 30,052

Dec. 31 unearned interest income 85,416

3. Prepare all journal entries

• The term of the loan may be short-term but in most cases,

• Accordingly, a loan receivable is measured at amortized cost

• If the initial amount recognized is lower than the principal

• To record the origination fees received from the borrower:

• To record the direct origination costs incurred by the bank:

• Because of the origination fees received and the direct

• The effective rate is computed through the “trial and error:

• December 31, 2019

• December 31, 2021

Unearned interest income 67,548

Unearned interest income 77,005

• Journal entries on December 31, 2021

Unearned interest income 87,247

DIRECT ORIGNATION COST

Dec 31 Interest Income 66,151

Dec 31 Interest Income 72,342

Dec 31 Cash 4,000,000

• When measuring expected credit losses, an entity should

• On December 31, 2016, International Bank assessed the

• Present Value of the Cash Flows (Computation)

• Journal entry on December 31, 2016

Loan Receivable 3,000,000

• To record the interest income using the effective interest method:

• To record the interest income:

Loan receivable – December 31, 2017 2,500,000

Interest income for 2018 (10% x 2, 148, 690) 214,869

• To record the interest income

Loan receivable – December 31, 2018 1,500,000

Interest income for 2015 (10% x 1,363,559) 136,356

Carrying amount of loan equal to principal only because

• Dec. 31 Cash 240,000

31 Loan Impairment Loss 428,400

Interest Income = Carrying * Effective Rate 5,020,000 * 8% = 401,600

JOURNAL Dec 31 Accrued Interest Receivable 480,000

31 Impairment loss 1,460,000

PRESENTATION - Dec 31, 2016

Loan receivable – December 31, 2016 6,000,000

31 Allowance for Loan Impairment 401,600

PRESENTATION - Dec 31, 2017

Loan receivable – December 31, 2017 5,000,000

31 Allowance for Loan Impairment 353,728

Alternative Computation - interest income, Dec 31, 2018

Interest Income - 2018 4,421,600 * 8% 353, 728

31 Allowance for Loan Impairment 224,672

(All journal entries in a separate sheet)

2 Loan Receivable - 12/31/16 9,000,000

31 Allowance for Loan Impairment 795,600

31 Allowance for Loan Impairment 711,072

31 Allowance for Loan Impairment 556,401

Loan Receivable - 12/31/18 5,500,000