-Determine the amount of impairment loss to be recognized by the bank for each of the alternatives and give entry to record impairment (Round off to four decimal places) 3-15.
Maynilad Bank has a P.10,000,000 loan to ABC Realty, which was invested by the latter in real estate development. Due to the economic downtrend in the real estate business, ABC Realty is experiencing declining sales and is likely to default on its obligation to Maynilad. ABC requests for a restructuring of its loan with Maynilad. Prevailing market rate of interest for similar obligations at the time of restructuring is 8%. Accrued interest receivable on the loan at December 31, 2016 is P1,000,000, based on stated interest rate of 10%. Maynilad had not previously recognized any impairment on this ABC note based on 12-month expected credit loss on date of initial recognition.
For each of the following alternative restructuring arrangements, determine the amount of the impairment loss to be recognized by Maynilad Bank, and give the entry in the books of the company to record the impairment. (Round off present value factors to four decimal places)
Alternative 1
•Reduction of principal to P9,000,000
•Condonation of accrued interest
•Extension of maturity date to December 31, 2018 Reduction of interest rate to 8%, payable annually on December 31.
Alternative 2
•Condonation of accrued interest
•Principal amount of P2,000,000 plus interest on the unpaid principal reduced to 8%, payable in annual installments to begin December 31, 2017.
Alternative 3
•Payment of the accrued interest on the date of restructuring (December 31, 2016)
•Extension of maturity date of the loan to December 31, 2018, with interest during the extended term at 7% payable on December 31, 2017 and 2018.
Alternative 4
•Extension of maturity date to December 31, 2018.
•Interest at 10% on the carrying value of the loan (P11,000,000) payable December 31, 2017 and December 31, 2018.
The present condition of ABC Realty indicates that it has the ability to meet the modified terms as indicated.