Loan Impairment

Question 1

What are impaired Loans Receivable written down to?

Answer 1

1. ) The present value of the future cash flows expected to be collected using the original effective interest rate for the loan
2. ) Market value if this value is more determinable

Question 2

What is the entry to write down Loan Receivables when they become impaired?

Answer 2

DR. Bad Debt Expense
CR. Contra-receivable

Interest revenue is recognized under several methods, including interest method and cost recovery methods

Question 3

When does loan impairment occur?

Answer 3

When the creditor believes the loan payments actually to be received have a lower fair value than under the original agreement.

Question 4

When a receivable is impaired, what should it be written down to?

Answer 4

The PV of the future cash flows expected to be collected using original effective interest rate for the loan or market value if more determinable.

Question 5

What are the two main methods Interest Revenue is recognized on a write down of Receivables?

Answer 5

1. ) Interest Method

2. ) Cost-Recovery Method

Question 6

What is a cash generating unit under IFRS?

Answer 6

Smallest group of assets that can be identified that generates cash flows independently of the cash flows of other assets