Loans

Receivable
LOANS RECEIVABLE

Loans receivable refer to financial assets arising from a loan granted by a bank
or another financial institution to a borrower or client.
LOANS RECEIVABLE
Problem 1
(Origination fees charged to borrower is greater than the direct origination costs shouldered by
lender)
River Bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 10%
payable annually starting December 31, 2020. The loan matures in 3 years on December 31, 2022.

Principal amount 4,000,000

Direct origination costs incurred 150,000
Origination fees charged against the borrower 342,100

After considering the origination fees charged against the borrower and the direct origination
costs incurred, the effective interest rate on the loan was determined at 12%.

REQUIRED: Journal entries related to the loan for 2020 2021 and 2022
LOANS RECEIVABLE
Problem 1 (cont.)
(Origination fees charged to borrower is greater than the direct origination costs shouldered by
lender)
River Bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 10%
payable annually starting December 31, 2020. The loan matures in 3 years on December 31, 2022.

Principal amount 4,000,000

Direct origination costs incurred 150,000
Origination fees charged against the borrower 342,100

After considering the origination fees charged against the borrower and the direct origination
costs incurred, the effective interest rate on the loan was determined at 12%.

REQUIRED: Journal entries related to the loan for 2020, 2021 and 2022
LOANS RECEIVABLE
Problem 1 (cont.)
(Origination fees charged to borrower is greater than the direct origination costs shouldered by
lender)
River Bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 10%
payable annually starting December 31, 2020. The loan matures in 3 years on December 31, 2022.

Principal amount 4,000,000

Direct origination costs incurred 150,000
Origination fees charged against the borrower 342,100

After considering the origination fees charged against the borrower and the direct origination
costs incurred, the effective interest rate on the loan was determined at 12%.

REQUIRED: Journal entries related to the loan for 2020, 2021 and 2022
LOANS RECEIVABLE
Problem 2
(Origination fees charged to borrower is less than the direct origination costs shouldered by lender)
River Bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 8% payable
annually starting December 31, 2020. The loan matures in 3 years on December 31, 2022.

Principal amount 3,000,000

Direct origination costs incurred 260,300
Origination fees charged against the borrower 100,000

After considering the origination fees charged against the borrower and the direct origination
costs incurred, the effective interest rate on the loan was determined at 6%.

REQUIRED: Journal entries related to the loan for 2020 2021 and 2022
LOANS RECEIVABLE
Problem 2 (cont.)
(Origination fees charged to borrower is less than the direct origination costs shouldered by lender)
River Bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 8% payable
annually starting December 31, 2020. The loan matures in 3 years on December 31, 2022.

Principal amount 3,000,000

Direct origination costs incurred 260,300
Origination fees charged against the borrower 100,000

After considering the origination fees charged against the borrower and the direct origination
costs incurred, the effective interest rate on the loan was determined at 6%.

REQUIRED: Journal entries related to the loan for 2020 2021 and 2022
LOANS RECEIVABLE
Problem 2 (cont.)
(Origination fees charged to borrower is less than the direct origination costs shouldered by lender)
River Bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 8% payable
annually starting December 31, 2020. The loan matures in 3 years on December 31, 2022.
Principal amount 3,000,000
Direct origination costs incurred 260,300
Origination fees charged against the borrower 100,000

After considering the origination fees charged against the borrower and the direct origination
costs incurred, the effective interest rate on the loan was determined at 6%.

REQUIRED: (1) Journal entries related to the loan for 2020 2021 and 2022 (2)Carrying amount of the
loans receivable as at December 31, 2020.
LOANS RECEIVABLE
Problem 3
(Origination fees charged to borrower is greater than the direct origination costs shouldered by
lender)
River Bank granted a loan to a borrower on January 01, 2020. The interest on the loan is 10%
payable annually starting December 31, 2020. The loan matures in three (3) years on December
31, 2022.

Principal amount 5,000,000

Direct origination costs incurred 100,000
Indirect origination costs incurred 50,000
Origination fees charged against the borrower 340,000

After considering the origination fees charged against the borrower and the direct origination
costs incurred, the effective interest rate on the loan was determined at 12%.

REQUIRED:
1. Carrying amount of the loan receivable on January 01, 2020.
2. Interest income for the year 2020.
3. Carrying amount of the loan receivable on December 31, 2020
LOANS RECEIVABLE
Problem 3 (cont.)
(Origination fees charged to borrower is greater than the direct origination costs shouldered by
lender)
River Bank granted a loan to a borrower on January 01, 2020. The interest on the loan is 10%
payable annually starting December 31, 2020. The loan matures in three (3) years on December
31, 2022.

Principal amount 5,000,000

Direct origination costs incurred 100,000
Indirect origination costs incurred 50,000
Origination fees charged against the borrower 340,000

After considering the origination fees charged against the borrower and the direct origination
costs incurred, the effective interest rate on the loan was determined at 12%.

REQUIRED:
1. Carrying amount of the loan receivable on January 01, 2020.
2. Interest income for the year 2020.
3. Carrying amount of the loan receivable on December 31, 2020
LOANS RECEIVABLE
Problem 3 (cont.)
(Origination fees charged to borrower is greater than the direct origination costs shouldered by
lender)
River Bank granted a loan to a borrower on January 01, 2020. The interest on the loan is 10%
payable annually starting December 31, 2020. The loan matures in three (3) years on December
31, 2022.

Principal amount 5,000,000

Direct origination costs incurred 100,000
Indirect origination costs incurred 50,000
Origination fees charged against the borrower 340,000

After considering the origination fees charged against the borrower and the direct origination
costs incurred, the effective interest rate on the loan was determined at 12%.

REQUIRED:
1. Carrying amount of the loan receivable on January 01, 2020.
2. Interest income for the year 2020.
3. Carrying amount of the loan receivable on December 31, 2020
LOANS RECEIVABLE
Problem 4
(Origination fees charged to borrower is greater than the direct origination costs shouldered by
lender)
River Bank granted a 10-year loan to Borrow-Money-Low Co. in the amount of Php 1,500,000 with a
stated interest rate of 6%. Payments are due monthly and are computed to be Php 16,650. River
Bank incurred Php 40,000 of direct origination cost and Php 20,000 of indirect loan origination
costs. In addition, the bank charged the borrower a 4-point (4%) nonrefundable loan origination
fee.

REQUIRED:
1. Carrying amount of the loan in the books of River Bank (lender) as at grant date.
2. Carrying amount of the loan in the books of Borrow-Money-Low (borrower) as at grant date.
LOANS RECEIVABLE
LOANS RECEIVABLE
Problem 5
(Impairment of Loans Receivable)
River Bank loaned Php 10,000,000 to a borrower on January 01, 2018. The terms of the loan
require principal payments of Php 2,000,000 each year for 5 years plus interest at 8%. The
first principal and interest payment is due on December 31, 2018. The borrower made the
required payments on December 31, 2018 and 2019.

However, during 2020, the borrower began to experience financial difficulties, requiring the
bank to reassess the collectibility of the loan. On December 31, 2020, the bank has
determined that the remaining principal payments will be collected but the collection of
the interest is unlikely. The bank has accrued the interest on the loan for 2020.

Expected principal payments:

December 31, 2021 1,000,000
December 31, 2022 2,000,000
December 31, 2023 3,000,000

Present value of 1 @ 8%:

For one period 0.93
For two periods 0.86
For three periods 0.79

REQUIRED:
1. Compute the impairment loss on the loan receivable
2. Prepare journal entries for 2018 - 2023
LOANS RECEIVABLE
Problem 5 (Answers)
(Impairment of Loans Receivable)
REQUIRED:
1. Compute the impairment loss on the loan receivable
2. Prepare journal entries for 2018 - 2023
LOANS RECEIVABLE
Problem 5 (Answers_cont.)
(Impairment of Loans Receivable)
REQUIRED:
1. Compute the impairment loss on the loan receivable
2. Prepare journal entries for 2018 - 2023
LOANS RECEIVABLE
Problem 6
(Impairment of Loans Receivable)
River Bank loaned a borrower Php 7,500,000 on January 01, 2018. The terms of the loan
were payment in full on January 01, 2023 plus annual interest payment at 12%. The interest
payment was made as scheduled on January 01, 2019.

However, due to financial setbacks, the borrower was unable to make the January 01, 2020
interest payment. The bank considered the loan impaired and projected the cash flows
from the loan on December 31, 2020. The bank accrued the interest on December 31, 2019
but did not continue to accrue interest for 2020 due to the impairment of the loan.

Projected cash flows:

Date of cash flows Amount projected on December 31, 2020 PV of 1 @ 12%
December 31, 2021 Php 500,000 1 period = 0.89
December 31, 2022 1,000,000 2 periods = 0.80
December 31, 2023 2,000,000 3 periods = 0.71
December 31, 2024 4,000,000 4 periods = 0.64

REQUIRED:
1. Compute the present value of the loan receivable on December 31, 2020.
2. Compute the impairment loss on the loan receivable.
3. Prepare the journal entries for 2018 - 2024
LOANS RECEIVABLE
Problem 6 (Answers)
(Impairment of Loans Receivable)
REQUIRED:
1. Compute the present value of the loan receivable on December 31, 2020.
2. Compute the impairment loss on the loan receivable.
3. Prepare the journal entries for 2018 - 2024
LOANS RECEIVABLE
Problem 6 (Answers_cont.)
(Impairment of Loans Receivable)
REQUIRED:
1. Compute the present value of the loan receivable on December 31, 2020.
2. Compute the impairment loss on the loan receivable.
3. Prepare the journal entries for 2018 - 2024
LOANS RECEIVABLE
Problem 7
(Impairment of Loans Receivable)
River Bank loaned Php 5,000,000 to a borrower on January 01, 2018. The terms of the loan
require principal payments of Php 1,000,000 each year for 5 years plus interest. The 1st
principal and interest payment is due on January 01, 2019.

The borrower made the required payments during 2019 and 2020. However, during 2020,
the borrower began to experience financial difficulties, requiring the bank to reassess the
collectibility of the loan. On December 31, 2020, the bank has determined that the
remaining principal payments will be collected as originally scheduled but the collection of
the interest is unlikely. The bank did not accrue the interest on December 31, 2020.

Present value of 1 @ 8%:

For 1 period 0.926
For 2 periods 0.857
For 3 periods 0.794

REQUIRED:
1. Impairment loss for 2020
2. Interest income for 2021
3. Carrying amount of the loan on December 31, 2021
LOANS RECEIVABLE
Problem 7 (Answers)
(Impairment of Loans Receivable)
REQUIRED:
1. Impairment loss for 2020
2. Interest income for 2021
3. Carrying amount of the loan on December 31, 2021
LOANS RECEIVABLE
Problem 8
(Impairment of Loans Receivable)
On December 31, 2020, River Bank has a 5-year loan receivable with a face amount of Php
5,000,000 dated January 01, 2019 that is due on December 31, 2023. Interest on the loan is
payable at 9% every December 31. The borrower paid the interest that was due on December 31,
2019 but informed the bank that interest accrued in 2020 will be paid at maturity date.

There is a high probability that the remaining interest payments will not be paid because of
financial difficulty. The prevailing market rate of interest on December 31, 2020 is 10%. The present
value of 1 for three periods is 0.772 at 9% and 0.751 at 10%.

REQUIRED:
1. Carrying amount of the loan on December 31, 2020 before impairment testing.
2. Present value of the loan cash flows on December 31, 2020.
3. Impairment loss for 2020