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Dear Tutor,
Regarding the recognition of loss allowance the following entry is needed
DEBIT Loss allowance (and Traveler’s retained earnings (W3)) 9.9 – 2 $7.9m
CREDIT Financial assets $7.9mIf I understand right the amount $2m (deducted from $9.9m) is the allowance b/f. Is the unwinding of the discount (Interest of 8% on allowance of $2m) for the current period not needed?
My calcuation was:
Allowance b/f 2
Interst (2mx8%) 0.16
Lifetime exp. credit loss 9.9
Loss allowance(9.9-2.16) 7.74Would my calculation gain any marks?
Thank you.
Hi,
The question doesn’t state that the financial asset has been incorrectly treated during the year, so the effective rate of interest will already have been accounted for.
Your workings would score most of the marks but you need to read the questions carefully.
Also, can you please tell me in future where the question is.
Thanks
Thank you for your help.
I’ve included the qestion No. and the source in the title. I will state it in the question in my future posts.Sir,
In this question, why the loss allowance on SICR would be calculated as (Life time expected credit losses minus 12 months expected credit losses) rather than recognize life time expected credit loss only? Would the loss allowance place in SFP or SPL?
Thanks
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