Loan Receivable and Impairment: Accounting Treatment and Measurement under IFRS 9, Exercises of Accounting

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Loan

Receivable

and

Impairmen

t

MSG- GSC AY 2020-

Loan Receivable

• Financial asset
• Loan granted by a financial institution to

a client

Origination Fees

Subsequent Measurement

DEPENDS on the business model (PFRS 9)

• if the business model in managing financial asset

is “to collect contractual cash flows on specified

dates” and “the contractual cash flows are solely

payments of principal and interest” the it shall be

measured at AMORTIZED COST using EFFECTIVE

INTEREST METHOD.

Impairment of Loan

PFRS 9 provides that an entity shall recognize a loss allowance for expected credit losses on financial asset measured at amortized cost. The entity shall measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if there is a significant increase since initial recognition. Credit loss are the present value of all cash shortfalls.

Impairment loss

CV of loan before impairment (+ accrued Interest Income if any) xx Less PV of Future Cash Flows discounted at the original interest rate xx Impairment Loss xx

3-Stage Impairment Approach

Under stage 3, a write off entry for loan receivable shall be necessary

Interest Income Under Each Stage Characteristic/s Accounting treatment Interest Income is recognized based on Stage 1 not declined significantly in credit quality 12-month credit loss is recognized GROSS CV (GCV) or FACE AMOUNT (FA) Stage 2 declined significantly in credit quality, but no objective evidence of impairment **contractual payments are 30 days past due a lifetime expected loss is recognized GROSS CV (GCV) or FACE AMOUNT (FA) Stage 3 declined significantly in credit quality, and have objective evidence of impairment a lifetime expected loss is recognized NET Carrying Amount (GCV or FA minus Allow. For Credit Loss)

That’s All!