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Mars
Major Contributor

Joined: 11 Mar 2007
Online Status: Offline
Posts: 514

Posted: 05 Oct 2010 at 20:16 \| IP Logged

I met these:

when measuring load impairment, if foreclosure is NOT probable, creditor can use either the market price of loan, or the fair value of collateral.

While if the foreclosure is probable, loan's market price, is the one that can be used, but not the fair value of collateral.

I don't understand what "foreclosure" means .. ???

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Cash and cash equivalent: investment of 3 months maturity included.

does it mean: the original maturity 3 months (that I bought a T-bills with 3 months maturity).

OR it also includes, investment bought with whatever maturity (say 5 years), but it will mature in 3 months from the date of purchase ?

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THANKS A LOT

PFgirl
Newbie
Newbie

Joined: 28 Sep 2009
Online Status: Offline
Posts: 44

Posted: 06 Oct 2010 at 11:09 \| IP Logged

Foreclsure means the debtor couldn't meet the payment when due, then creditor could take over the collateral and sell.
Here, foreclosure is not probable, that means creditor still wait debtor to repay the debt, but if creditor expect less amount will be received, he must account impairment loss (current CV-future PV of expected future cash flow)
ex: current CV of debt is $100,000, and expected to receive $75,000 in two year.
CV         &nbs p;         $100,000
PV of $75,000   $61,984
Impairment loss    $38,016

If foreclosure is probable (which means the collateral sold), I think if selling price is less than the CV, recognize loss, if greater than CV, derecognize CV of debt, and differece is recorded as liability-back to debtor. (I'm not sure about this)

for cash and cash equivalent: less than 3 months (usually start from purchasing date to maturity date), but if the question specified the term, do it according to it.

Mars
Major Contributor

Joined: 11 Mar 2007
Online Status: Offline
Posts: 514

Posted: 06 Oct 2010 at 15:10 \| IP Logged

I'm sorry, about foreclosure, I think your words is not consistent with what I wrote.

foreclosure is not probable, I wrote "use either market value of loan or collateral fair value", but you didn't mention collateral in case of "foreclosure is not probable".

while if foreclosure is probable, I wrote "collateral can't be used" ,,,

Maybe foreclosure means debtor get his collateral back, I'm not sure.

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