Purchased or originated credit-impaired financial asset (IFRS 9)
Where IFRS 9’s effective-interest and impairment requirements apply to an asset credit-impaired when purchased or originated, IFRS 9 uses a credit-adjusted effective interest rate reflecting expected credit losses in the estimated cash flows at initial recognition. Interest revenue is calculated by applying that rate to amortised cost. Subsequently, recognise cumulative changes in lifetime expected credit losses since initial recognition as the loss allowance; a favourable change may produce an impairment gain. High credit risk alone does not establish that an asset is credit-impaired at initial recognition.
Worked example
A bank purchases a loan already credit-impaired at initial recognition and subject to the IFRS 9 impairment requirements. After purchase, the cumulative change in lifetime expected credit losses, measured on the applicable discounted basis, is a $2,000 favourable change since initial recognition. Assuming no other changes, it recognises an impairment gain of $2,000 under the applicable requirements.
Common mistake
Applying ordinary gross-carrying-amount interest and a fresh full lifetime expected-loss allowance without considering the purchased or originated credit-impaired rules.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | SBR | Direct | September 2026–June 2027 |