Final answer:
The loss recognized on an impaired loan is the difference between the loan's book value and the present value of expected future cash flows without considering future interest. Other factors, such as late payments or economic changes, can influence the recoverability assessment and magnitude of impairment.
Step-by-step explanation:
The loss to be recognized by a creditor on an impaired loan would be the difference between the investment in the loan and the expected undiscounted future cash flows from the loan. When a loan becomes impaired, the creditor must measure the impairment and recognize a loss. This impairment loss reflects a more realistic valuation of what the creditor expects to collect, considering factors like delayed payments or the risk of default.
Factors that can influence the perceived recoverability of a loan include a borrower's payment history, changes in interest rates, the borrower's profitability, and overall economic conditions. For example, if the Safe and Secure Bank expected certain levels of defaults but encountered even more during a recession, causing a significant drop in the value of its loan portfolio, this unexpected increase in loan defaults would necessitate a reassessment of the expected cash flows and potentially lead to recognition of a loss.