Gorilwa ltd has a loan receivable amounting to frws 3200000 that was due to be paid in one year’s time. The effective and nominal interest of 8% in previous periods had been received in prompt time. At the end of the last year 31st December 2010, the client indicated financial difficulties and request not to pay the full interest for year ended 31december 2011 but pay a total of frws 3300000(including the principal of frw3200000) on 31st December 2011
REQUIRED: -SHOW JOURNAL ENTRIES OF IMPAIREMENT
-SHOW EXTRACTS OF INCOME STATEMENT AND BALANCE SHEET FOR THE YEAR ENDED 31st DECEMBER2011
KADHAFI MUDAHERANWA from RWANDA (Africa)
KADHAFI MUDAHERANWA! Simple journal entry of impairment loss will be following.
Impairment Loss of Asset Account Dr. XXXXX
Asset Account Cr. XXXXX
Every loss will be debited, so, we have debited impairment loss. With this, our asset will decrease. So, we have credited asset account.
Because your debtor account will be 3456000 but not getting interest, we should send it to bad debts account instead of impairment loss because reason of decreasing our asset value due to the default of debtor not due to changing of market value. We can just pass following journal entry.
1. Debtor Account Dr. 256000
Interest Receivable on loan Cr. 256000
2. Cash Account Dr. 3300000
Bad Debts Account Dr. 156000
Debtor Account Cr. 3456000
In income statement, this loss will be debited. In balance sheet, this loss is deducted from sundry debtors for loan.
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