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sir this is a major doubt! If you could confirm it, it will be a great source of relief.
sir if the credit risk of an entity is low, then that means its not credit impaired? but if its credit risk has increased significantly, only then can it be called credit impaired?
and unless an asset’s credit risk has increased significantly, we have to use gross carrying amount of the asset for purposes of calculating interest income. the moment we realise that credit risk has increased significantly we switch to net carrying amount. While in both cases continuing to show the net carrying amount of the asset in the SFP.
thanks!
Keep it simple or you will confuse your marker!
Everything in life is a bit ‘credit impaired’. But use the jargon in our course notes and you will be fine.
At stage 3 you are effectively writing off a debt as bad which is why interest is henceforth calculated on the net carrying amount.
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