BAD DEBT PROVISIONS - IFRSbox – Making IFRS Easy · 1 Impairment of financial assets under IFRS 9...
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1 www.IFRSbox.com Impairment of financial assets under IFRS 9 How to Make BAD DEBT PROVISIONS under IFRS 9 www.IFRSbox.com Impairment of financial assets under IFRS 9 ABC, a trading company, has trade receivables with gross carrying amount of CU 500 000 at the end of 20X4. Careful analysis of the trade receivables showed the following: How shall ABC recognize the impairment loss? Bankruptcy
Transcript of BAD DEBT PROVISIONS - IFRSbox – Making IFRS Easy · 1 Impairment of financial assets under IFRS 9...
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www.IFRSbox.com Impairment of financial assets under IFRS 9
How to Make
BAD DEBT PROVISIONS
under IFRS 9
www.IFRSbox.com Impairment of financial assets under IFRS 9
ABC, a trading company, has trade receivables with gross carrying amount of CU 500 000 at the end of 20X4. Careful analysis of the trade receivables showed the following:
How shall ABC recognize the impairment loss?
Bankruptcy
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IFRS 9 IAS 39
Choice until 1 January 2018
Impairment of financial assets under IFRS 9
Impairment of financial assets
Incurred credit loss Expected credit loss
www.IFRSbox.com Impairment of financial assets under IFRS 9
Bankruptcy
IAS 39 Incurred credit loss = CU 2 200
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Impairment (IFRS 9)
IFRS 9 July 2014:
General rule:
An entity shall recognize a
(IAS 39: Impairment loss)
Financial assets at amortized cost;
Lease receivables (IAS 17)
Loss allowance
Loan commitments
New rules for impairment of financial assets
Contract assets (IFRS 15)
for Expected credit losses on:
Financial assets at FVOCI (meeting both contractual CF test and business model test)
Financial guarantee contracts
Debt securities, receivables, loans
Impairment of financial assets under IFRS 9
Risk (as a percentage)
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Impairment (IFRS 9)
All contractual CF due in line with the contract (PV)
Original effective interest rate
Credit loss
Weighted average of credit losses with resp. risks of default as weights Expected credit loss
At initial recognition: OK
All CF expected to receive discounted at:
Credit-adjusted effective interest rate (for purchased or originated credit-impaired FA)
At initial recognition: impaired
Credit loss e.g. probability of default
< 90 days overdue => NO default
Impairment of financial assets under IFRS 9
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Impairment (IFRS 9)
3 stages of FA
Trade receivables 12-month ECL
• Do NOT contain significant financing component
Life-time ECL
Lease receivables (IAS 17)
Simplified approach General approach
Contract assets (IFRS 15)
• Contain significant financing component, but chosen to measure loss allowance at lifetime ECL
• If chosen to measure loss allowance at lifetime ECL
No stage
= Life-time ECL
(Lots of assessment not necessary)
All financial assets subject to impairment
Loss allowance Loss allowance
Except for: Trade receivables or contract assets (IFRS 15) without significant financing component
Impairment of financial assets under IFRS 9
www.IFRSbox.com Impairment of financial assets under IFRS 9
Bankruptcy
IAS 39 Incurred credit loss
= CU 2 200
IFRS 9 Expected credit loss = CU 12 323
= CU 2 200
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Impairment of financial assets under IFRS 9
