Credit Impaired Financial Assets

On January 1, 20x1, ABC Bank extended a 12%, 4-year P4,000,000 loan to XYZ, Inc. ABC Bank incurred direct origination costs of P364,098. ABC charged XYZ, Inc. 6% service charge. The effective interest rate on the loan is 11%.

On December 31, 20x2, ABC Bank assessed that the loan is credit impaired. All interests on the loan are settled. However, ABC Bank expects that future interests will not be collected. ABC Bank makes the following cash flow projections from the loan.

January 1, 20x3 P1,000,000

January 1, 20x4 P1,500,000

January 1, 20x5 P1,500,000

The current rate of interest on December 31, 20x2 is 12%

Requirements:

A. How much is the impairment loss on December 31, 20x2?

B. How much is the interest income in 20x3?

Can you please give a detailed solution and explanation I cant really understand how and why