in IAS 39 - Financial Instruments: Recognition and Measurement by Level 2 Member (4.2k points)
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I heard that general provisions for doubtful debtors based on debtor age analysis is not allowed under IFRS. Is it true?

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by Level 5 Member (11.6k points)
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Yes it is true. As per IAS 39, trade recivebles are financial assets. IAS 39 states:

59  A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more  events  that  occurred after the initial  recognition of the asset ...

Therefore general provisions are no longer allowed. However if you have hundreds of debtors then evaluating each & every debtor for impairment is not practical. Therefore in most cases induvidual impairment is done for major debtors only. Minor debtors are generally grouped into homogenous groups and assessed for impairment collectively. The calculation is normally based on historical data. There are many mathamatical loss forecasting models that you can use to calculate the impairment (or expected loss) in debtos groups. Some of these techniques are:

- *** flow rate method

- Vintage loss curve method

- Score distribution method

For your reference check this simple collective impairment calculation example using *** flow rate method, which seems to be more popular.

by

IAS 39 reference given is no longer valid as disclosure requirements of impairment has been moved to IFRS 7 Financial Instruments: Disclosures

by
What is the formula of *** Flow Rate Method, as I see in the given example, *** Flow Rate has been forced to zero in certain columns, which I cant understand..

Please give me some link where I can learn about *** Flow Rate Method..

Thanks in advance...
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by Level 1 Member (1.6k points)
You cant have general provisions anymore. Debtors need to be tested for impairment as per IAS 36
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by Level 2 Member (4.3k points)
You should test for impairment. Its kind of provision as previously but you can not determine deciding % on the age bucket.

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