Loans Receivable - Intermediate Accounting
Loans Receivable
A financial asset arising from a loan granted by a bank or other financial institution to a borrower or a client.
Today's Presentation
- Definition
- Initial Recognition
- Fair Value
- Transaction Costs
- Subsequent Measurement
- Effective Interest Rate (EIR)
- Origination Fees
- Impairment of Financial Assets
Loan Receivable
- Represents amounts lent to borrowers.
- As part of the ordinary course of business (e.g., banks and other financial institutions).
- Casually (e.g., lending of excess cash by a manufacturing entity).
Loans vs. Bonds
| Feature | Loans | Bonds (Investment in Bonds) |
|---|---|---|
| Traded in exchange market? | No | Yes (in bond markets) |
| Contract disclosure | Private contract | Public contract |
| Counterparty/ies | A lender or group of lenders | General public |
| Determination of interest rate | Privately agreed-upon | Based on prevailing market rates |
| Issuers (borrowers) | Not so known entities | Stable and well-known entities, the government |
- Both loans receivable and investment in bonds are considered securities.
Initial Recognition
- General Requirement (PFRS 9): Recognize a financial asset or liability when the entity becomes a party to the contractual provisions of the instrument.
- Exception (PFRS 9): Practical exception for