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Calculate provision expenses and write its journal entry
A finance institution has loan portfolio and the respective details are as given below −
| Loan portfolio (%) | 31-12-15 | Rate to calculate (%) |
|---|---|---|
| On schedule | 5286914 | |
| Loan in arrears | ||
| For first 30 days | 285147 | 2 |
| Next 30 days | 175823 | 22 |
| Next 30 days | 75259 | 22 |
| Next 90 days | 65231 | 53 |
| Next 180 days | 46327 | 100 |
| 360 days up | 25423 | 100 |
Solution
Calculations of provisions are as follows −
| Loan portfolio | 31-12-15 | Rate to calculate (%) | |
|---|---|---|---|
| On schedule | 5286914 | 0 | 0 |
| For first 30 days | 285147 | 2 | 5702.94 |
| Next 30 days | 175823 | 22 | 38681.06 |
| Next 30 days | 75259 | 22 | 16556.98 |
| Next 90 days | 65231 | 53 | 34572.43 |
| Next 180 days | 46327 | 100 | 46327 |
| 360 days up | 25423 | 100 | 25423 |
| Total | 5960124 | 167263.41 |
The journal entry for the provision expenses as per the above calculations is as follows −
| Account | Debit | Credit |
|---|---|---|
| Provision expenses Loan loss reserves | 167263.41 | 167263.41 |
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