On January 1, 2021, Chong Company had an overdue 10% note payable to AprilBank at P8,000,000 with accrued interest of P800,000. The company and the creditor agreed for the following restructuring agreement:
1. Reduced the principal obligation to P7,000,000.
2. Forgave the P700,000 of the accrued interest, and the remainder shall be added to the reduced principal obligation, payable at the end of the term.
3. Extended the maturity date to two years.
The interest rate remained the same, payable annually. The market rate of interest is also the same with the nominal rate.
What is the gain (or loss) on restructuring to be recognized in the profit or loss?
The PV of 1 at 10% for two periods is 0.83, and the PV of an ordinary annuity of 1 at 10% for two periods is 1.74.