Chapter 13 LOAN RECEIVABLE
amount the amortization of the
Loan Receivable
Financial asset arising from loan
granted by a bank or other financial
institution to a borrower or client
Loan may be short-term but in most
cases, the repayment periods cover
several years
Initial Measurement of loan receivable
Loan Receivable(FV)+Transaction cost
FV-Transaction price(amount of loan
granted)
Direct origination cost-
included in the initial
measurement of the LCR
Indirect Origination cost-
treated as outright expense
TC directly attributable to the
acquisition of the financial asset
Subsequent Measurement of Loan Receivable
PFRS 9, paragraph 4.1.2 provides that if the
business model in managing financial asset is to
collect contractual cash flows o specified dates
and the contractual cash flows are solely
payments of principal and interest, the financial
asset shall be measured at amortized cost.
LR is measured at AMORTIZED COST
using the Effective interest method
Amortized Cost
amount at which the loan receivable is
measured initially
a. Minus principal payments
b. Plus or minus cumulative
amortization of any difference
between the initial carrying amount
and the principal maturity amount.
c. Minus reduction for impairment or
uncollectible
Initial amount lower than principal
difference is added to the carrying
amount
Initial amount higher than principal
amount the amortization of the
difference is deducted from the carrying
amount
Origination fees
fees charged by the bank against the
borrower for the creation of the loan
include compensation for the ff.
activities
1. Evaluating the borrowers financial
condition
2. Evaluating guarantees, collateral
and other security
3. Negotiating the terms of the loan
4. Preparing and processing the
documents related to the loan
5. Closing and approving the loan
transaction
Accounting for origination fees
Direct origination fees capitalized, added to the
loan balance
Indirect origination cost valid expense of
creditor
Origination fee Origination fee
Received from borrower paid by bank
Unearned Interest Income
(subject to amortization)
Entry: Unearned Interest Income
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.