1) The document discusses debt restructuring techniques like asset swaps and equity swaps. An asset swap involves transferring an asset to the debtor in exchange for extinguishing a liability.
2) It also discusses the calculation of loans receivable and their carrying amounts over time using present value formulas. Origination fees are deducted from loans receivable.
3) The document provides an example of calculating impairment loss for a loan, which is the amount the carrying amount exceeds the present value of estimated future cash flows from the loan.
1) The document discusses debt restructuring techniques like asset swaps and equity swaps. An asset swap involves transferring an asset to the debtor in exchange for extinguishing a liability.
2) It also discusses the calculation of loans receivable and their carrying amounts over time using present value formulas. Origination fees are deducted from loans receivable.
3) The document provides an example of calculating impairment loss for a loan, which is the amount the carrying amount exceeds the present value of estimated future cash flows from the loan.
1) The document discusses debt restructuring techniques like asset swaps and equity swaps. An asset swap involves transferring an asset to the debtor in exchange for extinguishing a liability.
2) It also discusses the calculation of loans receivable and their carrying amounts over time using present value formulas. Origination fees are deducted from loans receivable.
3) The document provides an example of calculating impairment loss for a loan, which is the amount the carrying amount exceeds the present value of estimated future cash flows from the loan.
added to the initial cost of the receivable. Origination
Fees are deducted from the initial cost of the receivable. = +
Debt Restructuring (Asset Swap & Equity Swap)
Asset Swap. Transfer of any asset from debtor. Treated as a derecognition of a financial liability. (PFRS 9 Par 3.3.1) Dacion en Pago. Asset swap involving mortgaged property. This is when the collateral is confiscated by the financing entity due to the inability of the debtor entity to pay the loaned amount. = [ + ] Sample Problem: Land costing 500,000 and building costing 4,000,000 with accumulated depreciation of 800,000 were confiscated by X Bank in full extinguishment of a liability having a carrying amount of 3,000,000 and accrued interest receivable of 200,000. Transaction costs relating to legal fees in settlement of debt were 50,000. What is the gain (loss) on Extinguishment of debt? Equity Swap. Partial or full settlement of a debt through the issuance of equity instruments. Hierarchy of the Measurement of Equity Issued. 1. Fair value of equity issued. 2. Fair value of liability extinguished. 3. Carrying amount of equity issued. (No GLED) Sample Problem: An entity had 5,500,000 of debt. On x date, the entity issued share capital with par value of 2,000,000 and fair value of 4,500,000. The fair value of the bonds on that date was 4,700,000. Determine the GLED for each of the hierarchy of measuring equity instruments issued. Review of Time Value of Money PV Equations 1 (1 + ) =
1 (1 + )+1 +
The present value of a series of equal lumpsum cash
flows is the same as the present value of an annuity paying the same amount of cash flow each period. Sample Problem: Find the present value of 5 P500 annuity payments using lumpsum and annuity PV factors. EIR=12% Loans Receivable Initial Measurement. Fair value plus transaction costs. (PFRS 9 Par 5.1.1) Direct Origination Costs are
Carrying amount at each period (Shortcut). In your
calculator, perform the following operation: First: Shift -> setup -> 6 -> 5 or 2 Second: Enter the PV -> = Third: Enter the formula below and press = to find the PV at each period: (1 + ) Sample Problem: Find the carrying amount at each period of a loan with principal amount of 5,000,000, origination fee of 331,800 and direct origination costs of 100,000. The interest is 12% payable annually. Loan Impairment and Modification of Terms Modification of Terms. Loan impairment on the part of the debtor. Requires the immediate recognition of gain if there is substantial modification and the derecognition of the old financial liability and the recognition of a new financial liability amortized using a new effective rate if there is no substantial modification. Loan Impairment. Modification of terms or Debt Restructuring on the part of the creditor. Allowance for loan impairment is amortized at the periods with which the cash flows of the asset are impaired. Impairment Loss. Amount by which the carrying amount of the asset exceeds its recoverable amount. (PAS 36 Par 6) In the case of financial assets at amortized cost, recoverable amount pertains to the present value of its future cash flows at the date of impairment because USUALLY no FVLCD can be obtained from FAs under Business Model II. =
= +
Sample Problem: On December 31, 2012, Rogue
company signed a 2,000,000 note to Chinabank. The market interest rate at that time was 12%. The stated interest rate on the note was 10% payable annually. The note matures in five years. Unfortunately, because of lower sales, Rogues financial condition worsened. On December 31, 2014, Chinabank determined that it was probable that the company would pay back only 1,200,000 if the principal at maturity. However, it was also considered likely that the interest would be paid based on the 2,000,000 loan. What is the impairment loss?