On January 1, 2022, Strive Bank loaned P2,000,000 to Strike Company. Under the loan agreement, the loan interest rate is 10%, and Strike Company is to pay interest on the loan annually every December 31 starting December 31, 2022. The loan will mature on December 31, 2026. On December 31, 2022, Strive Bank has determined that there is a slight increase in the credit risk of the loan, therefore needs to measure the 12-month expected credit loss for the loan. The bank determined that the probability of the loan being in default over the next 12 months is 1% and that 20% of the principal amount will be lost over the term of the loan. On December 31, 2023, the bank has determined that there is a significant increase in the credit risk of the loan. The probability of the loan being in default over the life of the loan is 10% and 25% of the principal amount will be lost over the term of the loan. In 2024, the company began to face financial difficulties. On December 31, 2024, the bank considered the loan to be impaired. Interest for 2024 was collected. However, only 40% of the principal amount is expected to be received at the maturity date. How much of the interest income shall be reported for 2025? Use appropriate present value factors rounded off to four decimal places.

Answer rating: 100% (QA)

We will first compute the recoverable amount on Dec 31 2024 knowing that the loan is ... View the full answer