21 Details for one of the loan of BB Company that is probably impaired during the period is as follows: The company made a loan of P40,000,000 to a customer with similar credit risk to BB Company on...

21

Details for one of the loan of BB Company that is probably impaired during the period is as follows:

• The company made a loan of P40,000,000 to a customer with similar credit risk to BB Company on January 1, 2021.


• Interest is receivable on this loan at the end of each year at 2% per annum for the next five years.


• The loan was properly recorded and classified as amortized cost.


• The company made and initial assessment of the loan and the total expected credit losses over the life of the loan was P1,000,000. The discount rate applicable was at 2%.


• On January 1, 2021, the probability of default over the next 12 months was 5%.

At December 31, 2021, there was a significant increase in the credit risk on the loan made by BB Company, the expert assessed that the total expected credit losses over the life of the loan was increase to P2,200,000. The discount rate applicable was at 2%.

How much is the balance of the allowance for credit losses as of December 31, 2021?