BACHELOR OF BUSINESS ADMINISTRATION

Q COMPANY loaned P7, 500, 000 to a borrower on January 1, Year 1. The terms of the loan were payment in full on January 1, Year 5 plus annual interest payment at 12%. The interest payment was made as scheduled on January 1, Year 2. However, due to financial setbacks, the borrower was unable to make the Year 3 interest payment. The bank considered the loan impaired and projected the cash flows from the loan on December 31, Year 3. The bank had accrued the interest on December 31, Year 2 but did not accrue interest for Year 3 due to the impairment of the loan. The projected cash flows are:Date of cash flows Amount projectedDecember 31, Year 4 500, 000December 31, Year 5 1, 000, 000December 31, Year 6 2, 000, 000December 31, Year 7 4, 000, 000The PV of 1 at 12% is 0.89 for one period, 0.80 for two periods, 0.71 for three periods and 0.64 for four periods.What is the loan impairment loss to be recognized on December 31, Year 3?