Loan Receivable
Monday, 28 June 2021
9:33 pm
Measurement of Impairment
- When measuring expected credit losses, an entity should consider
1. The probability-weighted outcome
2. Time value of money
▪ Credit losses should be discounted
3. Reasonable and supportable information
- Measurement
○ Difference between the carrying amount and the present value of the estimated future cash
flows discounted at the original effective rate
○ Carrying amount of loan receivable can be reduced either
▪ Directly; or
▪ Through allowance method
- CREDIT RISK
○ A risk that one party to a financial instrument will cause a financial loss for the other party by
failing to discharge an obligation
- Three-Stage Impairment Approach
○ Stage 1 - low credit risk
▪ 12-month expected credit loss is recognized
▪ Interest income is computed based on the gross carrying amount or the face amount
○ Stage 2
▪ Debt instruments declined significantly but do not have objective evidence of impairment
▪ Lifetime expected credit loss is recognized
▪ Presumption:
□ There is a significant increase in credit risk if contractual payments are more than 30
days past due
▪ Interest income is computed based on the gross carrying amount or the face amount
○ Stage 3
▪ Have objective evidence of impairment at the reporting date
▪ Lifetime expected credit loss is recognized
▪ Interest income is computed based on net carrying amount
□ Net Carrying Amount = Gross Carrying Amount - Allowance for Credit Loss
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