General approach:
under general approach we calculate 12 month credit loss at reporting date. at year end in given question they record
Dr Finance cost 20.38
Cr loss allowance 20.38
my questions are if
Scenario 1
if next year X6 credit rating of our customer is not deteriorated we do not need to revise this allowance instead we unwind the financing component
Dr finance cost 20.38*.08=1.63
Cr loss allowance 1.63
Scenario 2
however if at X6 it is significantly deteriorated how its is recognized at the amount of life time loss which would be
Dr Finance cost 54.908(75.288-20.38)
CR allowance 54.908
scenario 3
if later on full amount is recovered we will take the effect in profit and loss for the difference?
Simplified approach
under simplified approach we are already at under stage two and recognize lifetime credit loss
my questions are
do we need to unwind the financing component and charge to profit and loss?
if at year end we feel that there is no significant deterioration can we change allowance? can we decrease allowance or increase it?
in OpenTuition notes there are three stages mentioned for credit loss however I didn't find these three stages in standard. standard just mention about first 12 months and lifetime credit loss. is there any exposure draft on it?
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General/ simplified approach of credit loss- INTASHA question 12 BPP revision ki
6y ago#1Non-receivables - e.g loan assets
There are definitely 3 stages!
But you (and Intasha) are over-complicating the issue massively.
Step 1 Calculate the allowance at the balance sheet date
Step 2 Compare to prior year allowance and difference goes to P&L (some of the difference relates to the unwinding of the discount- but it's not worth trying to separate it out)
Receivables:
Simplified method applies
End of what you need to know!
sir please clarify only one thing if above gets too complicated I'm sorry
in simplified approach at each reporting date can we revise our credit allowance?
as in standard it is said that we can recognize upto amount of life time credit loss. and in simplified approach we make allowance of lifetime credit loss at the start and if year end we have more recoveries or more loss do we need to revise the allowance or take its impact directly to profit and loss??
@stephenwidberg said: Non-receivables - e.g loan assets There are definitely 3 stages! But you (and Intasha) are over-complicating the issue massively. Step 1 Calculate the allowance at the balance sheet date Step 2 Compare to prior year allowance and difference goes to P&L (some of the difference relates to the unwinding of the discount- but it's not worth trying to separate it out) Receivables: Simplified method applies End of what you need to know!Sir you mentioned step 1 and 2 is for general approach. am I right?
6y ago#4Perfect (everything except receivables)
so I assume in simplified approach we cannot revised allowance but later we take effect directly
in receivables and profit and loss in case of more loss
and
if more recoveries then cash and profit and loss
6y ago#6No - allowance could go up or down - they'll probably keep a separate allowance account until the debt is definitely bad
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