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Credit impaired

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Credit impaired

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Stephen Widberg.
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  • March 26, 2021 at 9:22 am #615217
    Noah098
    • Topics: 936
    • Replies: 352
    • ☆☆☆☆☆

    Sir when is a financial asset said to be credit impaired? When the credit risk is low or high? Or either way it is impaired. Because apparently my study text seem to be alluding that when an asset’s credit risk is low, a loss allowance will be created but effective interest will still be calculated on gross carrying amount. Which is strange. I thought the moment there is a loss allowance needed we will Dr. SPL and Cr. Financial asset , and so effective interest would have been on net carrying amount of the asset.

    March 26, 2021 at 11:23 am #615231
    Stephen Widberg
    Moderator
    • Topics: 10
    • Replies: 2529
    • ☆☆☆☆☆

    1. Credit risk low = small loss allowance
    2. Credit risk high = big loss allowance

    Double entry (think back to your financial accounting / F3:

    Doubtful debt

    Dr P&L Cr Allowance for doubtful debts NOT Cr Receivable

    We only credit receivable when debt is definitely bad (now known as Stage 3 of impairment loss model).

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