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Expected credit loss model

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Expected credit loss model

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by Stephen Widberg.
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  • March 30, 2021 at 7:35 pm #615541
    humai
    Participant
    • Topics: 741
    • Replies: 238
    • ☆☆☆☆

    As per IFRS 9, non payment is a indicator that outstanding receivable are credit impaired. A loss allowance should be recognized equal to difference between gross carrying amount of receivables and PV of expected future cashflows receivable. Any increase or decrease in loss allowance is charged to PNL

    Sir is the above para referring to stage 3 of expected credit loss model?

    Secondly, loss allowance is stage 3 is recognized at PV of losses that arise because borrower defaults on their obligation throughout life of financial instrument OR is loss allowance in stage 3 is recognized equal to difference between gross carrying amount of receivables and PV of expected future cashflows receivable. Any increase or decrease in loss allowance is charged to PNL?

    March 31, 2021 at 11:58 am #615589
    Stephen Widberg
    Keymaster
    • Topics: 12
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    • ☆☆☆☆☆

    Stage 2 and 3 are more or less the same – compare the previous allowance with the new allowance and write the difference off in the P&L.

    Keep it simple in the exam, as always. 🙂

    More importantly, remember that you don’t use the 3 stage model for trade receivables.

    March 31, 2021 at 8:23 pm #615626
    humai
    Participant
    • Topics: 741
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    1) Sir why not to use stage 3 models for trade receivables? In a past exam question examiner has used stage 3 model for trade receivables

    2) For stage 3, is it correct or not to write that : loss allowance in stage 3 is recognized at PV of losses that arise because borrower defaults on their obligation throughout life of financial instrument / receivable

    April 1, 2021 at 11:05 am #615660
    Stephen Widberg
    Keymaster
    • Topics: 12
    • Replies: 2839
    • ☆☆☆☆☆

    1. Because the standard says so (unless trade receivables have a significant credit element).

    2. What you’ve written is fine.

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