Question

What are the steps in determining impairment of receivables under IFRS?

Answer 1

Under IFRS, determining the impairment of receivables involves identifying the receivables, estimating the expected cash flows, determining the present value of the cash flows, comparing it with the carrying amount, and recognizing an impairment loss if necessary.

Step-by-step explanation:

Under IFRS (International Financial Reporting Standards), there are several steps involved in determining the impairment of receivables:

1. Identify the receivables that may be impaired.
2. Estimate the expected cash flows from the receivables.
3. Determine the present value of the expected cash flows using an appropriate interest rate.
4. Compare the present value of the expected cash flows with the carrying amount of the receivables.
5. If the present value of the expected cash flows is less than the carrying amount, recognize an impairment loss and reduce the carrying amount of the receivables.

For example, if a company has a receivable of $10,000 and estimates that it will receive only $9,000 in cash flows, the present value of the expected cash flows may be determined to be $8,000. In this case, there would be an impairment loss of $2,000 ($10,000 - $8,000) recognized on the receivable.