BBM Company, one of LeniLugaw Company's credit customers, is experiencing financial difficulties due to operational restrictions brought
Question:
BBM Company, one of LeniLugaw Company's credit customers, is experiencing financial difficulties due to operational restrictions brought by Covid-19. The firm is unable to service its debts and as a result, has missed the payment of its note and accrued interest with LeniLugaw Company as well as in the payment of its tax liabilities with the BIR. The principal amount of the note is P500,000 (which is already due) with an annual interest of 10% payable annually. Accrued interest balance at December 31, 2020, is P50,000. BBM's management has negotiated a modification of its debt terms with LeniLugaw. At this time, the prevailing market rate of interest for similar transactions remained at 10%. LeniLugaw Company, because of its advocacy for "mas radical ang magmahal", agreed to the following new terms: (1) Forgive the accrued interest at December 31, 2020; (2) Extend the payment of the principal for two years, and (3) Reduce the interest rate (payable annually) to 8%. How much impairment loss should be recognized by BBM Company on December 31, 2020?
P67,330 | ||
P-0- | ||
P50,000 | ||
P103,744 |
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello