At December 31, 2019, one of TOCINO Company’s credit customers, HOTDOG Trading, is experiencing financial difficulties. As a result, HOTDOG Trading has missed the payment of the principal amount of its notes payable of P3, 000, 000 and accrued interest for the year is P300, 000. A restructuring arrangement was approved by the management of TOCINO Company, as follows: ❖ The principal was reduced to P2, 000, 000 and will be due on December 31, 2021; ❖ Accrued interest of P300, 000 is condoned; ❖ Interest rate is reduced to 8% payable on December 31, 2020 and December 31, 2021. The prevailing market interest rate for similar instrument at the time of restructuring (December 31, 2019) is 12%. What is the impairment loss to be recognized on December 31, 2019? (use four decimal places for the PV factor) a. P 0 c. P1, 369, 520 b. P 1, 157, 432 d. P1, 447, 184
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
At December 31, 2019, one of TOCINO Company’s credit customers, HOTDOG Trading, is experiencing financial difficulties.
As a result, HOTDOG Trading has missed the payment of the principal amount of its notes payable of P3, 000, 000 and
accrued interest for the year is P300, 000. A restructuring arrangement was approved by the management of TOCINO
Company, as follows:
❖ The principal was reduced to P2, 000, 000 and will be due on December 31, 2021;
❖ Accrued interest of P300, 000 is condoned;
❖ Interest rate is reduced to 8% payable on December 31, 2020 and December 31, 2021.
The prevailing market interest rate for similar instrument at the time of restructuring (December 31, 2019) is 12%. What is
the impairment loss to be recognized on December 31, 2019? (use four decimal places for the PV factor)
a. P 0 c. P1, 369, 520
b. P 1, 157, 432 d. P1, 447, 184
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