The detail of the BB Company loans that has probably been impaired during the period...
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Accounting
The detail of the BB Company loans that has probably been impaired during the period is as follows:
The company provided a loan of P40,000,000 to a customer with similar credit risk to BB Company on January 1, 2021.
Interest will be charged on this loan at the end of each year at 2% per year for the next five years.
The loan was duly recorded and classified as an amortized cost.
The company conducted an initial assessment of the loan and the total expected credit losses over the life of the loan were P1,000,000. The applicable discount rate was 2%.
On January 1, 2021, the probability of default in the next 12 months was 5%.
As of December 31, 2021, there was a significant increase in the credit risk of the loan granted by BB Company, the expert assessed that the total expected credit losses during the life of the loan increased to P2,200,000. The applicable discount rate was 2%.
How much is the balance of the preventive allowance for credit risks as of December 31, 2021?
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