If credit risk has not increased significantly since initial recognition, an entity may recognize a loss allowance equal to 12-month expected credit losses.

• True

• False

The effect of direct origination cost is a decrease in the effective interest rate of a loan receivable.

• True

• False

When there is a significant increase in the credit risk on a financial asset since its initial recognition, interest revenue is computed on the net carrying amount of the financial asset (i.e., gross carrying amount less loss allowance).

• True

• False

Impairment loss on financial assets may be recorded as a direct deduction to the impaired asset’s account or through an allowance. If the entity uses an allowance account to record impairment loss the amount credited to the allowance account is equal to the impairment loss recognized if the carrying amount of the impaired financial asset immediately before impairment testing does not include any accrued interest already recognized

• True

• False

Impairment loss on financial assets may be recorded as a direct deduction to the impaired asset’s account or through an allowance. If the entity uses an allowance account to record impairment loss, in no case would the amount credited to the allowance account be equal to the impairment loss recognized.

• True

• False

An entity determines that the credit risk on a loan receivable has not increased significantly since initial recognition. The entity should recognize loss allowance equal to

• the 12-month expected credit losses on the instrument.

• the lifetime expected credit losses on the instrument.

• 12-month or the lifetime expected credit losses on the instrument.

• none; credit losses should be recognized only when there is objective evidence of a loss event

According to PFRS 9, it refers to the expected credit losses that result from all possible default events over the expected life of a financial instrument

• 12-month expected credit losses

• Lifetime expected credit losses

• Loss allowance

• Absolute loss

Interest income is computed on the net carrying amount (i.e., gross carrying amount less loss allowance) of an instrument that is under which stage of the ‘three-stages’ approach of PFRS 9’s expected credit loss model?

• Stage 1

• Stage 2

• Stage 3

• Stage 4

On January 1, 2021, ABC Bank extended a 12%, ₱1,000,000 loan to XYZ, Inc. Principal is due on January 1, 2025 but interests are due annually every January 1. ABC Bank incurred direct loan origination costs of ₱88,394 and indirect loan origination costs of ₱18,000. In addition, ABC Bank charged XYZ a 2.5-point nonrefundable loan origination fee. The effective rate is 10%. How much is the interest income in 2022?

• 104,973

• 105,364

• 106,339

• 136,661

On January 1, 2021, ABC Bank extended a 12%, ₱1,000,000 loan to XYZ, Inc. Principal is due on January 1, 2025 but interests are due annually every January 1. ABC Bank incurred direct loan origination costs of ₱88,394 and indirect loan origination costs of ₱18,000. In addition, ABC Bank charged XYZ a 2.5-point nonrefundable loan origination fee. The effective rate is 10%. How much is the interest income in 2021?

• 104,973

• 105,364

• 106,339

• 136,661