Module 13 - Impairment Of Financial Assets

Question 1

Impairment model used

Answer 1

Expected credit losses - recognise impairment before it occurs

Question 2

Financial Assets at FVTPL and FVTOCI

Answer 2

Subsequent measurement at fair value reflects any impairment therefore no adjustment is required

Question 3

Financial assets at amortised costs

Answer 3

Risk of default exists and is not reflected in measurement basis therefore guidance exists

Question 4

Credit loss=

Answer 4

PV contractual cash flows due to entity - PV cash flows entity expects to receive

Present value of all cash shortfalls

Question 5

Lifetime ECL

Answer 5

ECL that result from all possible default events over the expected life of a financial instrument

Question 6

12 month ECL

Answer 6

Portion of lifetime ECL that result from default events on a financial instrument possible within 12 months after the reporting date

Question 7

Impairment loss double entry

Answer 7

DR SPL - impairment loss

CR Loss allowance

Question 8

Loss allowance for ECL on financial asset recognised (2)

Answer 8

At initial recognition

Each subsequent reporting date

Question 9

Loss allowance =

Answer 9

Allowance for expected credit losses on financial assets

Question 10

Initial 12 month expected credit losses may be

Answer 10

Nil

Question 11

Subsequent reporting dates - stage 1

Answer 11

No significant increase in credit risk > recognise 12 month ECL > effective interest calculated on gross financial asset

Question 12

Subsequent reporting dates - stage 2

Answer 12

Significant increase in credit risk > recognise lifetime ECL > effective interest calculated on gross financial asset

Question 13

Subsequent reporting dates - stage 3

Answer 13

Objective evidence of impairment > recognise lifetime ECL > effective interest calculated on net financial asset

Question 14

Net financial asset =

Answer 14

EIR % x (carrying amount - loss allowance)

Question 15

Rebuttal presumption credit risk financial asset

Answer 15

Increases significantly when contractual payments are > 30 days due

Question 16

Objective evidence of impairment (3)

Answer 16

• significant financial difficulty
• breach of contract such as default
• becoming probably that the borrower will enter bankruptcy

Question 17

To find present value

Answer 17

Cash amount / (1 + EIR^years elapsed)

Question 18

12 month ECL =

Answer 18

Lifetime ECL x probability of default within 12 months

Question 19

Lifetime ECL =

Answer 19

Lifetime ECL x probability of default in lifetime

Question 20

Asset derecognised when (2)

Answer 20

• rights to cash flows from the assets have expired

- substantially all the risks and rewards associated with the asset have been transferred

Question 21

Where asset doesn’t qualify for derecognition, proceeds received on transfer are

Answer 21

Recognised as a financial liability

Question 22

Gain or loss on financial asset =

Answer 22

Consideration received - carrying amount

Question 23

Financial assets classified as FVTPL/ FVTOCI at derecognition

Answer 23

Remeasured to fair value prior to derecognition

Question 24

Gain or loss on financial liability

Answer 24

Carrying amount - consideration paid

Question 25

Convertible debt double entry - on conversion

Answer 25

DR Convertible debt
CR Share capital
CR Share premium

Question 26

Convertible debt double entry on redemption

Answer 26

DR Convertible debt

CR Bank

Question 27

Convertible debt double entry after conversion or redemption

Answer 27

DR Reserve for convertible debt

CR Retained earnings

Question 28

Financial liability gain/ loss double entry

Answer 28

DR financial liability
CR bank
DR SPL - loss/ CR SPL - gain

Question 29

Financial asset gain/ loss double entry

Answer 29

DR bank
CR financial asset
CR SPL - gain / DR SPL - loss