I.

Cash and Cash Equivalents

A. Cash
- Cash on Hand
1. Currencies / Coins
2. Checks
- Cash Fund
1. Petty Cash Fund - Small Expenses
2. Payroll Fund - Salaries
Note: If the separate fund is restricted for other purposes, it should not be incl
- Cash in Bank
1. Bank Overdraft = Withdrawals > Deposit
Separate accounts in 1 Bank = Offset (Net Cash)
Separate Accounts in Separate Banks
- If the account has a negative balance, it is considered as current l
2. Compensating Balance
Not legally restricted = compensating balance is included in the cash balance
Legally restricted = compensating balance is excluded from cash.
- Money Order

B. Cash Equivalents
1.Time Deposit
2.Treasury Bill
3.Money market instrument

a. Date of Instrument
b. Acquisition Date
c. Maturity Date
Rule:
within 3 months from Acquisition Date - Maturity Date = Cash equivalents
more than 3 months but within 1 year from Acquisition date up to Maturity Da
more than 1 year from Acquisition date up to Maturity Date = Long term Inves

II. Bank Reconciliation

A. Book Reonciling Item:
1. Debit Memo - deductions from bank account but are not yet recorded in the book.
Example: Bank Service Charge, NSF Check
2. Credit Memo - Additions in the bank account but not yet recorded in the book.
3. Book error

B. Bank Reconciling items:

1. Deposit In Transit -
2. Outstanding Checks
 3. Bank Error

Beg. Cash Balance + Cash receipts - Cash disbursements = Unadjusted Book Balance
Beg. Cash Balance (Bank) + Deposits - Withdrawals = Unadusted Bank Balance

Unadjusted Book Balance Unadusted Bank Balance

+ Credit Memo Deposit In Transit +
- Debit Memo Outstanding Check -
Adjusted Book Balance Adjusted Bank Balance

III. Accounts Receivable

Collection:
Cash xxx
Accounts Receivable xxx
Sales returns / Sales discount:
Sales return xxx
Accounts Receivable xxx
Write off:
Direct Method:
Bad Debts Expense xxx
Accounts Receivable xxx
Allowance Method:
Allowance for Doubtful Accounts xxx
Accounts Receivable xxx

Recovery:
Accounts Receivable xxx
Allowance for Doubtful Accounts xxx
Cash xxx
Accounts Receivable xxx

Computation for Doubtful Accounts:

1. % of Sales = Doubtful Accounts Expense
2. % of AR = Required Allowance for Doubtful Accounts
3. Aging of AR = Required Allowance for Doubtful Accounts

Pro forma:
Beginning Balance of Allowance for D.A. xxx
+ Doubtful Accounts Expense xxx
+ Recovery xxx
Total xxx
- Write off xxx
Ending Allowance for Doubtful Accounts xxx
purposes, it should not be included in the Cash.

ce, it is considered as current liability.

included in the cash balance

luded from cash.

ty Date = Cash equivalents

uisition date up to Maturity Date = Short term Investment under Current Assets.
aturity Date = Long term Investment under Non Current Assets.

ded in the book.

in the book.
ed Book Balance
I. Cash and Cash Equivalents
A. Cash
- Cash on Hand
1. Currencies / Coins
2. Checks
- Cash in Bank
1. Bank Overdraft = Withdrawals > Deposits
a. Separate accounts in 1 Bank = Offset (Net Cash)
b. Separate Accounts in Separate Banks
= Negative balance of that separate account must be treated curre
2. Compensating Balance
a. Not Legally restricted = still included in the Cash balance.
b. Legally restricted = excluded from cash
- Cash Fund
1. Petty Cash Fund - Small expenses
2. Payroll Fund - Salaries
Note: Funds that are established for long term purposes must be excluded from c
Example: Sinking Fund = payment for Bonds Payable
- Sinking Fund (Included in Cash) = Bonds Payable (Shor
- Sinking Fund (Excluded from Cash) = Bonds Payable (Lo
- Money Order

B. Cash Equivalents
1. Time Deposit
2. Treasury Bill
3. Money Market Placement

Date of Instrument
Acquisition Date
Maturity Date

Rule: within 3 months from Acquisition date - Maturity Date = Cash Equivalents
more than 3 months but within 1 year from Acquisition date - Maturity Date = Sh
more than 1 year from Acquisition date - Maturity Date = Long Term Investment (

II. Bank Reconciliation

A. Book Reconciling items
1. Debit Memo - Deductions in the bank but not yet relfected in the book.
Examples: Bank Service Charge, NSF Check
2. Credit Memo - Additions to the bank balance but not yet reflected in the book.
3. Bank Error
B. Bank Reconciling items
1. Deposit in Transit
 2. Outstanding Check
3. Bank Error

Beg. Cash Balance + Cash receipts - Cash disbursements = Unadjusted Book Balance
Beg. Cash Balance (Bank) + Deposits - Withdrawals = Unadusted Bank Balance

Unadjusted Book Balance Unadusted Bank Balance

+ Credit Memo Deposit In Transit +
- Debit Memo Outstanding Check -
Adjusted Book Balance Adjusted Bank Balance

III. Accounts Receivable

Collection:
Cash xxx
Accounts Receivable xxx
Sales returns / Sales discount:
Sales return xxx
Accounts Receivable xxx
Write off:
Direct Method:
Bad Debts Expense xxx
Accounts Receivable xxx
Allowance Method:
Allowance for Doubtful Accounts xxx
Accounts Receivable xxx

Recovery:
Accounts Receivable xxx
Allowance for Doubtful Accounts xxx
Cash xxx
Accounts Receivable xxx

Computation for Doubtful Accounts:

1. % of Sales = Doubtful Accounts Expense
2. % of AR = Required Allowance for Doubtful Accounts
3. Aging of AR = Required Allowance for Doubtful Accounts

Pro forma:
Beginning Balance of Allowance for D.A. xxx
+ Doubtful Accounts Expense xxx
+ Recovery xxx
Total xxx
- Write off xxx
Ending Allowance for Doubtful Accounts xxx
nt must be treated current liability.

must be excluded from cash.

onds Payable
h) = Bonds Payable (Short term)
Cash) = Bonds Payable (Long term)

Cash Equivalents
ate - Maturity Date = Short Term Investment (under Current Assets)
= Long Term Investment (under Non Current Assets)

cted in the book.

et reflected in the book.

 A B
2020 2023 2020
2,000,000 3,000,000 ?
Present Value
Lump Sum PV of 1
10% (interest rate)
PV of 1 2020
2021 1 period = 1 / (1+i) 0.9091
2022 2 period = 0.9091 / 1.10 0.8265
2023 3 period = 0.8265 / 1.10 0.7513

3,000,000 x 0.7513 2,253,900

3,000,000 (2023) Present Value (2020)

PV of 1 (10%)
1 period = 1 / (1.10) 0.9091
2 period = 0.9091 / 1.10 0.8265
3 period = 0.8265 / 1.10 0.7513
4 period = 0.7513 / 1.10 0.6830

PV of OA for 4 periods 3.1699

Problem 1
Cash 600,000
NR 2,400,000 PV = ?
Equipment (CA) 2,400,000
PV of 1 (9%)
1 period 1,200,000 0.9174 1,100,917
2 period 1,200,000 0.8417 1,010,016
PV of NR 2,110,920

Q2
Cash 600,000 NR @ face value 2,400,000
NR @PV 2,110,920 NR @ PV (2,110,920) Principal
Total 2,710,920 Unearned Interest Income 289,080 Interest
Equipment at CA (2,400,000)
Gain on Sale 310,920

Cash 600,000
Notes Receivable 2,400,000
Accumulated Depreciation 3,000,000
Equipment 5,400,000
Gain on Sale 310,920
Unearned Interest Income 289,080

Problem 2
Face value 400,000
PV of NR (300,520)
Unearned Interest Income 99,480
Present Value
Interest Income
Date Unearned Interest Income (Carrying
(10%)
1-Jan-16 99,480 Amount)
300,520
31-Dec-16 30,052 69,428 330,572
31-Dec-17 33,057 36,371 363,629
31-Dec-18 36,371 0 400,000
Interest Income = Interest rate x Carrying Amount of NR
Dec 31, 2016
Unearned Interest Income 30,052
Interest Income 30,052

Dec 31, 2017

Unearned Interest Income 33,057
Interest Income 33,057

Dec 31, 2018

Unearned Interest Income 36,371
Interest Income 36,371
 Jan 01, 2019 Cash 400,000
Notes Receivable 400,000

Problem 3
Face Value of NR 2,500,000
PV of NR -1,996,350
Unearned Interest Income 503,650
 C
3,000,000 Present Value
750,000 2020 Same
750,000 2021 ? 2020
750,000 2022 ? 2020
750,000 2023 ? 2020
Installment
10% (interest rate)
PV of 1
2020 1.0000 750,000 750,000.00
2021 0.9091 750,000 681,825.00
Present Value
2022 0.8265 750,000 619,875.00 (2020)
2023 0.7513 750,000 563,475.00
Total 2,615,175.00

Present Value (2020) 2,615,175.00

PV of OA for 3 periods
PV of 1 0.9091
0.8265
0.7513
PV of OA 2.4868
Present Value (2020)
2020 1.0000 750,000.00 750,000.00
2021-2023 2.4868 750,000.00 1,865,100.00
Total 2,615,100.00
 A B
2020 2023 Present Value
2,000,000 3,000,000 ? 2020
Lump Sum (Interest rate = 10%)
PV of 1 PV of 1
2021 1 period = 1 / (1 + i) 0.9091
2022 2 period = 0.9091 / 1.1 0.8265
2023 3 period = 0.8265 / 1.1 0.7514

3,000,000 X 0.7514 2,254,200

Present Value (2020)

Interest rate (10%)

1 period = 1 / (1 + i)
2 period = 0.9091 / 1.1
3 period = 0.8265 / 1.1
4 period = 0.7514 / 1.1
Total
PV of 1 for 4 periods
PV of OA of 1 for 4 periods

Problem 1
Cash 600,000
NR (Face) 2,400,000
Equipment (CA) 2,400,000
PV of 1 (9%)
1 period 1,200,000 0.9174 1,100,917.43
2 period 1,200,000 0.8417 1,010,015.99
Total 2,110,920.00

PV of Notes Receivable (December 31, 2018) = P 2,110,920

Cash received 600,000

NR (PV) 2,110,920
Total Selling Price 2,710,920
Equipment @ CA (2,400,000) Cost = P 5,400,000
Gain on Sale 310,920

NR at face value 2,400,000

NR at PV (2,110,920) Principal
Unearned Interest Income 289,080 Interest

Journal Entry:
Cash 600,000
Notes Receivable 2,400,000
Accumulated Depreciation 3,000,000
Gain on Sale 310,920
Unearned Interest Income 289,080
Equipment 5,400,000

Installment (Amortization)
Present Value
Annual
Date Interest Income (9%) Principal (Carrying
Collection
Amount)
31-Dec-18 2,110,920
31-Dec-19 1,200,000 189,983 1,010,017 1,100,903
31-Dec-20 1,200,000 99,097 1,100,903 0
Interest Income = Interest rate x Carrying Amount
Interest Income (2019) 189,983
CA of NR (2019) 1,100,903

CA of Equipment = Cost - Acc. Dep 350,000

Lump Sum (amortization)
 Unearned Present Value
Date Interest Income (10%) Interest (Carrying
Income Amount)
1-Jan-16 99,480 300,520
31-Dec-16 30,052 69,428 330,572
31-Dec-17 33,057 36,371 363,629
31-Dec-18 36,371 0 400,000
Interest Income = Interest rate x Carrying Amount

31-Dec-16 Unearned Interest Income 30,052

Interest Income 30,052

31-Dec-17 Unearned Interest Income 33,057

Interest Income 33,057

31-Dec-17 Unearned Interest Income 36,371

Interest Income 36,371

1-Jan-19 Cash 400,000

Notes Receivable 400,000
 C
3,000,000
2020 750,000
2021 750,000
2022 750,000
2023 750,000
Installment PV of 1 PV (2020)
2020 750,000 1.0000 750,000.00
2021 750,000 0.9091 681,825.00
2022 750,000 0.8265 619,875.00
Value (2020) 2023 750,000 0.7514 563,550.00
Total 2,615,250.00

Present Value (2020) 2,615,250.00

Note: Use the PV of OA for installment collection with similar amounts.

PV of OA PV of 1
1 period 0.9091
2 period 0.8265
3 period 0.7514
Total 2.4869

PV of OA for 3 periods 2.4869

PV (2020)
2020 750,000 1.0000 750,000.00
2021-2023 750,000 2.4869 1,865,175.00
Total 2,615,175.00

Present Value (2020) 2,615,175.00

PV of 1
0.9091
0.8265
0.7513
0.6830
3.1698
0.6831
3.1698
 A B Present Value C
2020 2023 2020 3,000,000
2,000,000 3,000,000 2020
Lump Sum 2021
PV of 1 Interest rate = 10% 2022
1 / (1 + i) ^ n PV of 1 2023
2021 1 period = 1 / (1 + 0.10) 0.9091 Installment with same amounts
2022 2 period = 0.9091 / 1.10 0.8264
2023 3 period = 0.8264 / 1.10 0.7513 2020
2021
3,000,000 x 0.7513 = 2,253,900.00 2022
2023
Present Value (2020) 2,253,900.00

PV of 1 (10%)
1 period 0.9091
2 period 0.8264
3 period 0.7513
Total 2.4869

PV of 1 for 3 periods
PV of OA of 1 for 3 periods

2020
2021-2023

2020 2021 2022

Present Value 0.7513 0.8264 0.9091
Future Value 1.0000 1.1000 1.2100

PV of 1 (10%)
1 period = 1 / (1 + 0.10) 0.9091
2 period = 0.9091 / 1.10 0.8264
3 period = 0.8264 / 1.10 0.7513
4 period = 0.7513 / 1.10 0.6830
Total 3.1699
 PV of 1 for 4 periods 0.6830
PV of OA for 4 periods 3.1699

Problem 1
Cash 600,000
NR at face value 2,400,000
Equipment at CA 2,400,000
PV of 1 at 9% Present Value
1 period ### 0.9174 1,100,917
2 period ### 0.8417 1,010,016
Total 2,110,920

PV of Notes Receivable (December 31, 2018) = P 2,110,920

Cash received 600,000

PV of NR 2,110,920
Total Selling Price 2,710,920
Equipment at CA (2,400,000)
Gain on Sale 310,920

NR at face value 2,400,000

PV of NR (2,110,920)
Unearned Interest Income 289,080

Journal Entry:
Cash 600,000
Notes Receivable 2,400,000
Accumulated Depreciation 3,000,000
Equipment 5,400,000
Unearned Interest Income 289,080
Gain on Sale 310,920

Amortization Table - Installment

Present Value
Interest Income
Date Annual Collection Principal (Carrying
(9%)
Amount)
31-Dec-18 2,110,920
31-Dec-19 1,200,000 189,983 1,010,017 1,100,903
31-Dec-20 1,200,000 99,097 1,100,903 0
Interest Income = Carrying Amount x Interest rate
Interest Income (2019) = 189,983
 Carrying Amount of Notes Receivable (2019) = 1,100,903

Problem 2
Amortization Table - Lump Sum
Present
Unearned Value
Date Interest Income (10%)
Interest Income (Carrying
Amount)
1-Jan-16 99,480 300,520
31-Dec-16 30,052 69,428 330,572
31-Dec-17 33,057 36,371 363,629
31-Dec-18 36,371 0 400,000
Interest Income = Carrying Amount x Interest rate

31-Dec-16 Unearned Interest Income 30,052

Interest Income 30,052

31-Dec-17 Unearned Interest Income 33,057

Interest Income 33,057

31-Dec-18 Unearned Interest Income 36,371

Interest Income 36,371

1-Jan-19 Cash 400,000

Notes Receivable 400,000
 Interest rate = 10%
PV (2020)
750,000
750,000
750,000
750,000
allment with same amounts
PV of 1 Present Value (2020)
750,000 1.0000 750,000.00
750,000 0.9091 681,825.00
750,000 0.8264 619,800.00
750,000 0.7513 563,475.00
Total 2,615,100.00

Present Value (2020) 2,615,100.00

0.7513
2.4869
PV of OA for 3 periods Present Value (2020)
750,000.00 1.0000 750,000.00
750,000.00 2.4869 1,865,175.00
Total 2,615,175.00

Present Value (2020) 2,615,175.00

2023
1
1.3310
 Direct Origination Cost - Lender addition to the Loan Receivable
Indirect Origination Cost - Lender Expense
Origination fees - Borrower deduction to the Loan Receivable

Direct Origination Cost

Unearned Interest Income xxx
Cash xxx

Indirect Origination Cost - Lender

Expense xxx
Cash xxx

Origination fees
Cash xxx
Unearned Interest Income xxx

Origination Fees? = Loan si Borrower

Unearned Interest Income = Hindi pa kasi napapakinabangan initially yung loan
Unearned Interest income Interest Income = habang lumilipas yung panahon, napapakinabangan na yung

Cash Collection
1. Principal Amount (Face value of Loan Receivable)
2. Interest Collection - payment of interest from borrower
3. Origination fees - payment of borrower to execute contract of loan

Problem 1
Principal Amount 4,000,000 10% nominal rate
Direct Origination Cost 61,500
Origination fee received from borrower -350,000
Initial Carrying Amount of the Loan 3,711,500 12% effective rate

Date Journal Entries:

1-Jan-18 Loan Receivable 4,000,000
Cash 4,000,000
*To record the Loan

Cash 350,000
Unearned Interest Income 350,000
*To record the origination fees

Unearned Interest Income 61,500

Cash 61,500
 *To record the direct origination costs

Interest Received = Collection of interest from borrower

Interest Income = Combination of interest collected + unearned interest income recognized in the current year

Formula:
Interest Received = Face Value of LR x Nominal Rate
Interest Income = Carrying amount of LR x Effective rate

Interest Received = 4,000,000 x 10%

= P 400,000

Interest Income = 3,711,500 x 12%

= 445,380

Journal Entry:
Cash 400,000 Cash
Interest Income 400,000 Unearned Interest Income
OR
Unearned Interest Income 45,380
Interest Income 45,380

Amortization TableInterest
(Loan Receivable)
Interest Income
Date Received Amortization
(12%)
1-Jan-18 (10%)

31-Dec-18 400,000 445,380 45,380

31-Dec-19 400,000 450,826 50,826
31-Dec-20 400,000 456,925 56,925
31-Dec-21 400,000 463,756 63,756
31-Dec-22 400,000 471,614 71,614

Interest Received = Face value x Nominal rate

Interest Income = Carrying Amount x Effective rate
Amortization = Interest Income - Interest Received

Loan Impairment Loan Receivable

Problem 1 7,500,000 Jan 01, 2020
Interest payment Jan 01, 2016 Dec 31, 2016 Entry: Interest Receivable
Jan 01, 2017 X
 Reschedule: Dec 31, 2017 Start of payment PV of 1 (12%) PV of Cash Flow
12/31/18 500,000 0.89 445,000
12/31/2019 1,000,000 0.8 800,000
12/31/2020 2,000,000 0.71 1,420,000
12/31/2021 4,000,000 0.64 2,560,000
12/31/17 Total 7,500,000 5,225,000

Computation for Impairment Loss: Face Value of LR

Loan Receivable 7,500,000 PV of LR
Interest Receivable 900,000 Allowance fo Loan Impairment
Total 8,400,000
PV of Cash Flow (5,225,000)
Impairment Loss (2017) 3,175,000

Entry:
Impairment Loss 3,175,000
Allowance for Loan Impairment 2,275,000
Interest Receivable 900,000

Amortization Table: Present Value

Annual Interest
Date Principal (Carrying
Collection Income (12%)
31-Dec-17 Amount)
5,225,000
31-Dec-18 500,000 627,000 -127,000 5,352,000
31-Dec-19 1,000,000 642,240 357,760 4,994,240
31-Dec-20 2,000,000 599,309 1,400,691 3,593,549
31-Dec-21 4,000,000 406,451 3,593,549 0

Interest Income = CA x Interest rate

Principal = Collection - Interest Income
CA = Principal + prior CA

Journal Entry:
Allowance for Loan Impairment 627,000
Interest Income 627,000

Problem 2
Jan 01, 2016 P 5,000,000

Payment
Jan 01, 2017 OK
 Jan 01, 2018 OK

Jan 01, 2018 - Dec 31, 2018 = Financial Difficulties

Reschedule: Dec 31, 2018 PV of 1 (8%) PV of Cash Flow

Collection January 01, 2019 1,000,000 1.000 1,000,000
January 01, 2020 1,000,000 0.926 926,000
January 01, 2021 1,000,000 0.857 857,000
Total 3,000,000 2,783,000 Carrying Amount

Computation for Impairment Loss:

Loan Receivable 3,000,000 Face Value of LR
Interest Receivable 0 PV of LR
Total 3,000,000 Allowance for Loan Impairment
PV of Cash Flow (2,783,000)
Impairment Loss 217,000

Journal Entry:
Impairment Loss 217,000
Allowance for Loan Impairment 217,000

October 01, 2020 Three Stage Impairment

Stage 1
Carrying Amount - December 31, 2019 2,000,000
Probability of Collection 80%
Expected Cash Flow 1,600,000
Multiply by PV of 1 at 10% for 7 periods 0.51
Present Value of Cash Flow - December 31, 2019 816,000

Carrying Amount - December 31, 2019 2,000,000

PV of expected cash flow - December 31, 2019 -816,000
Expected Credit Loss 1,184,000
Multiply by probability of default within 12 months 5%
12-month expected credit loss 59,200

Loan Receivable 2,000,000

Allowance for Loan Impairment -59,200
Carrying Amount - December 31, 2019 1,940,800

Stage 2
Carrying Amount - December 31, 2020 2,000,000
 Probability of Collection 70%
Expected Cash Flow 1,400,000
Multiply by PV of 1 at 10% for 6 period 0.56
Present Value of Cash Flow - December 31, 2020 784,000

Carrying Amount - December 31, 2020 2,000,000

PV of expected cash flow - December 31, 2020 -784,000
Expected Credit Loss 1,216,000
Multiply by probability of default within 12 months 40%
12-month expected credit loss 486,400

Lifetime expected credit allowance 486,400

Unadjusted allowance - December 31, 2 59,200
Impairment Loss 427,200

Loan Receivable 2,000,000

Allowance for Loan Impairment 486,400
Carrying Amount - December 31, 2020 1,513,600

Stage 3
Carrying Amount - December 31, 2021 2,000,000
Probability of Collection 50%
Expected Cash Flow 1,000,000
Multiply by PV of 1 at 10% for 5 period 0.62
Present Value of Cash Flow - December 31, 2021 620,000

Carrying Amount - December 31, 2021 2,000,000

PV of expected cash flow - December 31, 2021 -620,000
Expected Credit Loss 1,380,000
Unadjusted allowance - December 31, 2 -486,400
Impairment Loss 893,600

Loan Receivable 1,000,000

Allowance for Loan Impairment (1,380,000 - 1,000,000) 380,000
Carrying Amount - December 31, 2021 620,000

Interest Income (2022)

CA x Interest Rate 620,000 x 10%

Interest Income (2022) P 62,000

napapakinabangan na yung loan
current year

400,000
rned Interest Income 45,380
Interest Income 445,380

Carrying Amount
3,711,500
3,756,880
3,807,706
3,864,630
3,928,386
4,000,000

###

est Receivable 900,000

Interest Income 900,000
Carrying Amount

7,500,000
(5,225,000)
2,275,000

406,451
ing Amount

3,000,000
(2,783,000)
217,000
 a Principal (Face Value of Loan Receivable)
b Direct Origination Cost - Lender =
c Indirect Origination Cost - Lender =
d Origination Fees - Borrower =

a Loan Receivable xxx

Cash

b Unearned Interest Income xxx

Cash

c Expense xxx
Cash

d Cash xxx
Unearned Interest Income

Origination fees = Contract of Loan

Unearned Interest Income Interest Income = habang napapakinabangan ng borrower y

3 Cash Collections
1. Principal (Face value of LR)
2. Interest Collection
3. Origination Fees

Principal Amount 4,000,000 10% Nominal rate

Direct Origination Cost 61,500
Origination fee received from borrower -350,000
Initial Carrying Amount of the Loan 3,711,500 12% Effective rate

Date Journal Entries:

1-Jan-18 Loan Receivable 4,000,000
Cash 4,000,000
*To record the Loan

Cash 350,000
Unearned Interest Income 350,000
*To record the origination fees

Unearned Interest Income 61,500

Cash 61,500
*To record the direct origination costs
Interest Received = Collection of interest from borrower
Interest Income = Interest collected + unearned interest income recognized in the current year.

Interest Received = Face Value x Nominal Rate

Interest Income = Carrying Amount x Effective rate

Interest Received = 4,000,000 x 10%

400,000

Interest Income = 3,711,500 x 12%

445,380

Journal Entry:
Cash 400,000
Interest Income 400,000
OR
Unearned Interest Income 45,380
Interest Income 45,380

Amortization Table (Loan Receivable)

Interest Interest Income

Date
Received (10%) (12%)

1-Jan-18
31-Dec-18 400,000 445,380
31-Dec-19 400,000 450,826
31-Dec-20 400,000 456,925
31-Dec-21 400,000 463,756
31-Dec-22 400,000 471,614

Interest Received = Face value x Nominal rate

Interest Income = Carrying Amount x Effective rate
Amortization = Interest Income - Interest Received

Loan Impairment
Problem 1
Loan Impairment
Problem 1 7,500,000 Jan 01, 2020
Interest payment Jan 01, 2016 Dec 31, 2016 Entry:
Jan 01, 2017 X
Reschedule: Dec 31, 2017 Collection: PV of 1 (12%)
12/31/2018 500,000 0.89
12/31/2019 1,000,000 0.80
12/31/2020 2,000,000 0.71
12/31/2021 4,000,000 0.64
Total 7,500,000

Computation for Impairment Loss:

Loan Receivable 7,500,000 Face value of LR
Interest Receivable 900,000 PV of LR
Total 8,400,000 Allowance for Loan Impairment
PV of Cash Flow (5,225,000)
Impairment Loss (2017) 3,175,000

Journal Entry:
Impairment Loss 3,175,000
Allowance for Loan Impairment 2,275,000
Interest Receivable 900,000

Amortization Table:
Annual Interest Income
Date
Collection (12%)
31-Dec-17
31-Dec-18 500,000 627,000
31-Dec-19 1,000,000 642,240
31-Dec-20 2,000,000 599,309
31-Dec-21 4,000,000 406,451

Interest Income = CA x Interest rate

Principal = Collection - Interest Income
CA = Principal + prior CA

Journal Entry: (Dec. 31, 2018)

Allowance for Loan Impairment 627,000
Intrest Income

Problem 2
Problem 2
Jan 01, 2016 P 5,000,000

Payment
 Jan 01, 2017 OK
Jan 01, 2018 OK

Reschedule: Dec 31, 2018 Collection: PV of 1 (8%)

01/01/2019 1,000,000 1.000
01/01/2020 1,000,000 0.926
01/01/2021 1,000,000 0.857
Total 3,000,000

Computation for Impairment Loss:

Loan Receivable 3,000,000 Face Value of LR
Interest Receivable 0 PV of LR
Total 3,000,000 Allowance for Loan Impairment
PV of Cash Flow (2,783,000)
Impairment Loss (2018) 217,000

Journal Entry:
Impairment Loss 217,000
Allowance for Loan Impairment 217,000

Loan Receivable - 12/31/18 3,000,000

Collection on January 01, 2019 (1,000,000)
Loan Receivable - January 01, 2019 2,000,000
Allowance for Loan Impairment (217,000)
Carrying Amount - January 01, 2019 1,783,000
Interest rate 8%
Interest Income (2019) 142,640

Journal Entry:
Allowance for Loan Impairment 142,640
Interest Income 142,640

Loan Receivable - December 31, 2019 2,000,000

Allowance for Loan Impairment - December 31, 2019
(P 217,000 - P 142,640) -74,360
3. Carrying Amount - December 31, 2019 1,925,640

Three Stage Impairment Approach

Stage 1
Carrying Amount - December 31, 2019 2,000,000
Probability of Collection 80%
Expected Cash Flow 1,600,000
Multiply by PV of 1 at 10% for 7 periods 0.51
Present Value of Cash Flow - December 31, 2019 816,000

Carrying Amount - December 31, 2019 2,000,000

PV of expected cash flow - December 31, 2019 -816,000
Expected Credit Loss 1,184,000
Multiply by probability of default within 12 months 5%
12-month expected credit loss 59,200

Loan Receivable 2,000,000

Allowance for Loan Impairment -59,200
Carrying Amount - December 31, 2019 1,940,800

Stage 2
Carrying Amount - December 31, 2020 2,000,000
Probability of Collection 70%
Expected Cash Flow 1,400,000
Multiply by PV of 1 at 10% for 6 periods 0.56
Present Value of Cash Flow - December 31, 2020 784,000

Carrying Amount - December 31, 2020 2,000,000

PV of expected cash flow - December 31, 2020 -784,000
Expected Credit Loss 1,216,000
Multiply by probability of default within 12 months 40%
12-month expected credit loss 486,400

Lifetime expected credit allowance 486,400

Unadjusted allowance - December 31, 2019 -59,200
Impairment Loss 427,200

Loan Receivable 2,000,000

Allowance for Loan Impairment -486,400
Carrying Amount - December 31, 2020 1,513,600

Stage 3
Carrying Amount - December 31, 2021 2,000,000
Probability of Collection 50%
Expected Cash Flow 1,000,000
Multiply by PV of 1 at 10% for 5 periods 0.62
Present Value of Cash Flow - December 31, 2021 620,000
Carrying Amount - December 31, 2021 2,000,000
PV of expected cash flow - December 31, 2021 -620,000
Expected Credit Loss 1,380,000
Unadjusted allowance - December 31, 2019 -486,400
Impairment Loss 893,600

Loan Receivable 1,000,000

Allowance for Loan Impairment (1,380,000 - 1,000,000) (380,000)
Carrying Amount - December 31, 2021 620,000

Interest Income (2022)

Carrying Amount x Interest Rate
(P 620,000 x 10%)

Interest Income (2022) P 62,000

 Addition to the Loan Receivable
Expense
Deduction to the Loan Receivable

xxx

xxx

xxx

xxx

bang napapakinabangan ng borrower yung loan

 Cash 400,000
Unearned Interest Income 45,380
Interest Income 445,380

Carrying
Amortization
Amount

3,711,500
45,380 3,756,880
50,826 3,807,706
56,925 3,864,630
63,756 3,928,386
71,614 4,000,000 71,614

Effective rate
rest Received

Loan Receivable 7,500,000

Interest Receivable 900,000

Interest Income 900,000
 PV of Cash Flow
445,000
800,000
1,420,000
2,560,000
5,225,000 Carrying Amount of LR

e value of LR 7,500,000
(5,225,000)
wance for Loan Impairment 2,275,000

Present Value
Principal (Carrying
Amount)
5,225,000
-127,000 5,352,000
357,760 4,994,240
1,400,691 3,593,549
3,593,549 0 406,451

627,000
 PV of Cash Flow
1,000,000
926,000
857,000
2,783,000 Carrying Amount

Value of LR 3,000,000
(2,783,000)
wance for Loan Impairment 217,000
Principal Amount (Face Value of Loan Receivable)
Direct Origination Cost - Lender = Addition to Loan Receivable
Indirect Origination Cost - Lender = Expense
Origination Fees - Borrower = Deduction to Loan Receivable

Journal Entry:
Principal Amount
Loan Receivable xxx
Cash xxx

Direct Origination Cost

Unearned Interest Income xxx
Cash xxx

Indirect Origination Cost

Expense xxx
Cash xxx

Origination Fee
Cash xxx
Unearned Interest Income xxx

Origination Fees = related to the execution of the contract of Loan

Unearned Interest Income Interest Income = dahil habang lumilipas yung taon, mas napapakinaba

3 Cash Collection
1. Principal (Face Value of Loan)
2. Interest Collection
3. Origination Fees

Principal Amount (Face Value) 4,000,000 10% Nominal rate

Direct Origination Cost 61,500
Origination fee received from borrower -350,000
Initial Carrying Amount of the Loan 3,711,500 12% Effective rate

Date Journal Entries:

1-Jan-18 Loan Receivable 4,000,000
Cash 4,000,000
*To record the Loan

Cash 350,000
Unearned Interest Income 350,000
*To record the origination fees
 Unearned Interest Income 61,500
Cash 61,500
*To record the direct origination costs

Interest Received = Interest collected from borrower

Interest Income = Interest collected + unearned interest income recognized in the current year

Interest Received = Face Value x Nominal Rate

Interest Income = Carrying Amount x Effective rate

Interest Received 4,000,000 x 10%

400,000

Interest Income 3,711,500 x 12%

445,380

Journal Entry:
Cash 400,000
Interest Income 400,000
OR
Unearned Interest Income 45,380
Interest Income 45,380

Amortization Table (Loan Receivable)

Interest Received Interest Income
Date
(10%) (12%)
1-Jan-18
31-Dec-18 400,000 445,380
31-Dec-19 400,000 450,826
31-Dec-20 400,000 456,925
31-Dec-21 400,000 463,756
31-Dec-22 400,000 471,614

Interest Received = Face value x Nominal rate

Interest Income = Carrying Amount x Effective rate
Amortization = Interest Income - Interest Received

Loan Impairment
Problem 1
Loan Impairment Jan 01, 2015
7,500,000 Jan 01, 2020
Interest payment Jan 01, 2016 Dec 31, 2016 Entry:
Jan 01, 2017 X

Reschedule: December 31, 2017 Collection: PV of 1 (12%)

12/31/2018 500,000 0.89
12/31/2019 1,000,000 0.80
12/31/2020 2,000,000 0.71
12/31/2021 4,000,000 0.64
Total 7,500,000

Computation for Impairment Loss:

Loan Receivable 7,500,000 Face Value of LR
Interest Receivable 900,000 PV of LR
Total 8,400,000 Allowance for Loan Impairment
PV of Cash Flow (5,225,000)
Impairment Loss (2017) 3,175,000

Journal Entry:
Impairment Loss 3,175,000
Allowance for Loan Impairment 2,275,000
Interest Receivable 900,000

Amortization Table: Interest Present Value

Date Annual Collection Income Principal (Carrying
31-Dec-17 (12%) Amount)
5,225,000
31-Dec-18 500,000 627,000 -127,000 5,352,000
31-Dec-19 1,000,000 642,240 357,760 4,994,240
31-Dec-20 2,000,000 599,309 1,400,691 3,593,549
31-Dec-21 4,000,000 406,451 3,593,549 0

Interest Income = CA x Interest rate

Principal = Collection - Interest Income
CA = prior CA - principal

Journal Entry: (2018) Allowance for Loan Impairment 627,000

Interest Income 627,000

Problem 2

Jan 01, 2016 P 5,000,000

Payment
Jan 01, 2017 OK 1,000,000
Jan 01, 2018 OK 1,000,000

Reschedule: Dec 31, 2018 Collection: PV of 1 (8%) PV of Cash Flow

01/01/2019 1,000,000 1.000 1,000,000
01/01/2020 1,000,000 0.926 926,000
01/01/2021 1,000,000 0.857 857,000
Total 3,000,000 2,783,000

Computation for Impairment Loss:

Loan Receivable 3,000,000 Face Value of LR
Interest Receivable - PV of LR
Total 3,000,000 Allowance for Loan Impairment
PV of Cash Flow (2,783,000)
Impairment Loss 217,000

Journal Entry:
Impairment Loss 217,000
Allowance for Loan Impairment 217,000

Loan Receivable - 12/31/18 3,000,000

Collection on January 01, 2019 (1,000,000)
Loan Receivable - January 01, 2019 2,000,000
Allowance for Loan Impairment (217,000)
Carrying Amount - January 01, 2019 1,783,000
Interest rate 8%
Interest Income (2019) 142,640

Allowance for Loan Impairment 142,640

Interest Income 142,640

Loan Receivable - December 31, 2019 2,000,000

Allowance for Loan Impairment - December 31, 2019
(P 217,000 - P 142,640) (74,360)
3. Carrying Amount - December 31, 2019 1,925,640

Three Stage Impairment

Stage 1
Carrying Amount - December 31, 2019 2,000,000
Probability of Collection 80%
Expected Cash Flow 1,600,000
Multiply by PV of 1 at 10% for 7 periods 0.51
Present Value of Cash Flow - December 31, 2019 816,000

Carrying Amount - December 31, 2019 2,000,000

PV of expected cash flow - December 31, 2019 -816,000
Expected Credit Loss 1,184,000
Multiply by probability of default within 12 months 5%
12-month expected credit loss 59,200

Loan Receivable 2,000,000

Allowance for Loan Impairment -59,200
Carrying Amount - December 31, 2019 1,940,800

Stage 2
Carrying Amount - December 31, 2020 2,000,000
Probability of Collection 70%
Expected Cash Flow 1,400,000
Multiply by PV of 1 at 10% for 6 periods 0.56
Present Value of Cash Flow - December 31, 2020 784,000

Carrying Amount - December 31, 2020 2,000,000

PV of expected cash flow - December 31, 2020 -784,000
Expected Credit Loss 1,216,000
Multiply by probability of default within 12 months 40%
12-month expected credit loss 486,400

Lifetime expected credit allowance 486,400

Unadjusted allowance - December 31, 2019 -59,200
Impairment Loss 427,200

Loan Receivable 2,000,000

Allowance for Loan Impairment -486,400
Carrying Amount - December 31, 2020 1,513,600

Stage 3
Carrying Amount - December 31, 2021 2,000,000
Probability of Collection 50%
Expected Cash Flow 1,000,000
Multiply by PV of 1 at 10% for 5 periods 0.62
Present Value of Cash Flow - December 31, 2021 620,000
Carrying Amount - December 31, 2021 2,000,000
PV of expected cash flow - December 31, 2021 -620,000
Expected Credit Loss 1,380,000
Unadjusted allowance - December 31, 2020 -486,400
Impairment Loss 893,600

Loan Receivable 1,000,000

Allowance for Loan Impairment (1,380,000 - 1,000,000) (380,000)
Carrying Amount of Loan Receivable 620,000

Interest Income (2022) (Carrying Amount x 10%)

(620,000 x 10%)
Interest Income (2022) P 62,000
pas yung taon, mas napapakinabangan yung loan
 Cash 400,000
Unearned Interest Income 45,380
Interest Income 445,380

Amortization Carrying Amount

3,711,500
45,380 3,756,880
50,826 3,807,706
56,925 3,864,630
63,756 3,928,386
71,614 4,000,000 71,614

Effective rate
rest Received

Loan Receivable ###

Interest Receivable 900,000
Interest Income 900,000

PV of Cash Flow
445,000
800,000
1,420,000
2,560,000
5,225,000 Carrying Amount of LR

7,500,000
(5,225,000)
2,275,000

406,451
Carrying Amount

3,000,000
(2,783,000)
217,000