On January 1, 2020, Uniform Co. sold its 2-year old equipment to XYZ Inc. for a cash down-payment of P100,000 and a non-interest bearing note with a face amount of P900,000 due December 31, 2021. There is no established price for the equipment but its carrying amount on the company’s books was at P600,000. The prevailing market rate of interest for similar note of this type on the transaction date was at 10%. On December 31, 2020, XYZ developed a financial difficulty and it was apparent that it will no longer be able to settle the amount due on December 31, 2021. To maximize the recovery of the note, Uniform agreed to extend the maturity of the note up to December 31, 2022.  Furthermore, Uniform also agreed to reduce the principal amount by 25%.

How much is the impairment loss to be recognized on the note in 2020?

1. 342,149
2. 204,545
3. 260,331
4. 286,364

Answer rating: 100% (QA)

The note would be initially recorded at its present value based on the market interest ra... View the full answer