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Chapter 13 LOAN RECEIVABLE Initial amount lower than principal

amount the amortization of the


Loan Receivable
difference is added to the carrying
Financial asset arising from loan amount
granted by a bank or other financial
institution to a borrower or client Initial amount higher than principal
Loan may be short-term but in most amount the amortization of the
cases, the repayment periods cover difference is deducted from the carrying
several years amount

Initial Measurement of loan receivable


Origination fees
Loan Receivable(FV)+Transaction cost
FV-Transaction price(amount of loan fees charged by the bank against the
granted) borrower for the creation of the loan
Direct origination cost- include compensation for the ff.
included in the initial activities
measurement of the LCR 1. Evaluating the borrowers financial
Indirect Origination cost- condition
treated as outright expense 2. Evaluating guarantees, collateral
TC directly attributable to the and other security
acquisition of the financial asset 3. Negotiating the terms of the loan
4. Preparing and processing the
Subsequent Measurement of Loan Receivable documents related to the loan
PFRS 9, paragraph 4.1.2 provides that if the 5. Closing and approving the loan
business model in managing financial asset is to transaction
collect contractual cash flows o specified dates
and the contractual cash flows are solely
payments of principal and interest, the financial Accounting for origination fees
asset shall be measured at amortized cost. Direct origination fees capitalized, added to the
LR is measured at AMORTIZED COST loan balance
using the Effective interest method Indirect origination cost valid expense of
Amortized Cost creditor

amount at which the loan receivable is


measured initially Origination fee Origination fee
a. Minus principal payments Received from borrower paid by bank
b. Plus or minus cumulative
amortization of any difference Unearned Interest Income
between the initial carrying amount (subject to amortization)
and the principal maturity amount.
c. Minus reduction for impairment or Entry: Unearned Interest Income
uncollectible Interest Income
Origination fee Origination fee
Received from borrower Paid by bank

Direct origination cost CREDIT RISK


(subject to amortization) Risk that one party to a financial
(Prepaid asset) instrument will cause a financial loss for
Entry: Interest Income the other party by failing to discharge an
DOC obligation.
Risk contemplated risk that the issuer
Impairment of Loan will fail to perform a particular
obligation, risk does not necessarily
PFRS 9, paragraph 5.5.1 provides that an entity relate to the credit worthiness of the
shall recognize a loss allowances for expected isuuer
credit losses on financial asset measured at
amortized cost
PFRS 5.5.3 provides that an entity shall measure Carrying amount xx
the loss allowance for a financial instrument at Present Value (discounted @original ER) xx
an amount equal to the lifetime expected credit Impairment Loss xx
losses significantly since initial recognition
Loan Impairment loss xx
Credit losses present value of all cash shortfalls Accrued Interest Receivable xx
Allowance for loan Impairment xx
Expected credit losses- estimate of credit losses
over the life of the financial instrument Loan Receivable xx
Allowance for loan impairment xx
Measurement of Impairment Carrying Amount xx

When measuring expected credit losses, an To record the cash collection


entity should consider: Cash xx
Loan Receivable xx
1. The probability-weighted outcome
2. The time value of money To record the interest income using the
3. Reasonable and supportable effective interest method:
information that is available without Allowance for loan impairment xx
undue cost or effort. Interest Income (CA x int. Rate) xx

Carrying amount xx
Present Value (discounted @original ER) xx
Impairment Loss xx

CA of the LR shall be reduced either


directly or through the use of an
allowance account.