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Hi
must i charge interest as an expense on the amount of the expected credit loss itself over the next 12 months and then compound that?
Regards
Hi,
No, once the credit loss is calculated then it is not adjusted until any evidence exists of the change in amount moving between the different stages.
Thanks
I would like to continue this thread for further clarification
in question 12 of BPP INTASHA part b
on Life time expected credit loss they are calculating interest and compounding it. I do under stand that difference of 150 million and 128.85 is a financing component. so for the life time expected credit loss of 75.288 do we need to unwind the discount each year under simplified approach or general approach if we recognize 25 percent of 75 million.. BPP is really confusing on this. please clarify.
All you need to do is to decide on the value of the allowance at the start and at the end of the year.
The difference would then be posted to the profit and loss
You will not have time to separate out the unwinding of the discount from the increase in bad debt.
Keep it simple
from calculation perspective okay but when we are explaining principles of IFRS in exam, what should be the explanation? we will unwind the discount where there is significant financing component. so 12 month credit loss or lifetime credit loss will be unwind and finance cost will be recorded in profit and loss?
I would explain that there will be a charge in the profit and loss representing the unwinding of the discount on the allowance brought forward plus an increase in the allowance because of additional credit risk.
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