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Impairment of financial assets – ACCA SBR

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  1. hi I struggle to understand this. Can the double entry be used please.

    for example stage 1 . what do we do exactly. Dr Receivable 4k Cr Allowance 4k, and in the end of the year do we DR bad debts provision in the SPL 0.2k and CR Allowance in SFP 0.2k ?

    stage 2 – do we increase Allowance in SFP by 195.8k CR Allowance , and we DR bad debts provision DR 195.8k in SPL?

    stage 3 – netting off allowance with Receivable ? DR Allowance 200k CR Receivable 200k?….

    Thank you

    • First Stage:
      Dr. P/L. 4
      Cr Provision 4

      You unwind the credit at the end of the year by as:
      Dr. P/L (.05 x 200). .2
      Cr Provision. .2

      Second Stage
      The closing provision balance should be 200. So, what you process to P/L is the movement between 4 & 200, which is 195.8. This recorded as:
      Dr. P/L. 195.8
      Cr. Provision. 195.8

      Last Stage
      You derecognise the liability by writing off the provision balance to receceivable account as:
      Dr. Provision. 195.8
      Cr. Receivable. 195.8

      The balance on receivable account is written off to P/L as
      Dr. P/L. 4.2
      Cr. Receivable. 4.2

      • First Stage:
        Dr. P/L. 4
        Cr Provision 4

        You unwind the credit at the end of the year by as:
        Dr. P/L (.05 x 200). .2 <—————–**Typo error, should be (0.05 x 4000)
        Cr Provision. .2

        Second Stage
        The closing provision balance should be 200. So, what you process to P/L is the movement between 4 & 200, which is 195.8. This recorded as:
        Dr. P/L. 195.8
        Cr. Provision. 195.8

        Last Stage
        You derecognise the liability by writing off the provision balance to receceivable account as:
        Dr. Provision. 195.8
        Cr. Receivable. 195.8

        ***[ hmm, why don't just derecognise in full amount of 200k of provision instead of 195.8? provided that provision itself ady 200k as at 2nd stage (first stage (4+0.2) + 2nd stage 195.8)

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