Bank A has receivable from Bank B in the amount of 3,5 mln from normal trading operations.
Bank A has made decision to purchase Bank B credit portfolio for the 4 mln but Bank B transferred credit portfolio in the amount of 5 mln. Bank A considers that Bank B is a problematic bank and will not receive its amount due from Bank B and want to resolve this issue in a different way.
Bank A has made the following entry in its accounts.
Dr. Loan receivable – 5mln
Cr. Receivable form bank B 3.5
Cr. Cash 0.5 mln
Cr Loan receivable ( contra account) -1 mln
Subsequently Bank A made this double entry to recognize income gained from purchased loan portfolio based on effective interest rate method.
D-r Loan receivable ( contra account)
C-r Interest income
My question is that is this approach right or not. If not what your opinion or comment will be on the above stated issue.
Thank you in advance.