loans receivable

• direct organization cost is initially added to carrying amount and subsequently at amortized cost; subsequent amortization decreases CA and interest income
• origination fees are initially deducted to CA and subsequently amortized; subsequent amortization increases CA and interest income
• indirect origination cost are not included and expensed immediately
• discount- when carrying amount is less than face amount
• premium- when carrying amount is greater than face amount
• on discount, EIR is higher than nominal rate
• on premium, EIR is lower than nominal rate
• if the transaction price differs from the fair value on initial recognition, difference is recognized as gain or loss in profit or loss-day 1 difference
• expected credit loss shall be applied to all debt instruments that are not measured at fair value
• trade receivables, contract assets and lease receivables---simplified approach
• originated or purchased credit-impaired financial assets---changes in lifetime expected credit losses approach
• other assets/exposure---general approach(three-stage/three-bucket approach)
• general approach is based on three stages which are intended to reflect the credit deterioration and improvement of a financial instrument
• credit risk has not increased/low credit risk expediency--recognize 12-month ECL---interest revenue is computed on gross CA
• credit risk has increased significantly---lifetime ECL---interest revenue is computed on the gross CA
• net carrying amount= gross CA less loss allowance
• credit risk has increased plus objective evidence of impairment---lifetime ECL---interest revenue is computed on net CA
• loss allowance is the allowance for expected credit losses on financial assets that are within the scope of impairment on PFRS 9
• expected credit losses is the weighted average of credit losses with the respective risks of a default occurring as the weights
• credit losses is the difference between all contractual cash flows that are due to an entity in accordance with the contract and all the cash flows that the entity expects to receive, discounted at the original EIR
• 12-month expected credit losses is the portion of lifetime expected credit losses that represent expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date
• credit risk is the risk that one party to a financial instrument will cause financial loss for the other party by failing to discharge an obligation
• low credit risk expediency: an entity may assume that the credit risk has not increased significantly since initial recognition
• lifetime expected credit loss is the expected credit losses that result from all possible default events over the expected life of a financial instrument
• on collective basis, an entity can group financial instruments on the basis of shared credit risk characteristics
• probability weighted outcome is unbiased in that it neither reflects a worst or best case scenario; it considers both possibilities that loss will or will not occur
• a financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occured
• impairment loss is computed as the difference of the gross carrying amount and the present value of estimated cash flows discounted at the original EIR
• impairment loss is deducted from the carrying amount of the impaired loan or note receivable either directly or through an allowance account
• loss allowance recognized at the reporting date is equal to the cumulative changes in lifetime expected credit losses since initial recognition
• credit-adjusted EIR is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial asset to the amortized cost
• PFRS 9 does not require specific procedures in estimating lifetime expected credit losses under the simplified approach
• derecognized when contractual rights to the cash flows from the financial asset expire and the financial asset is transferred and the transfer qualifies for derecognition
• contractual rights to financial asset expire when the cash flows are collected, cancelled, or when they become uncollectible because of loss events
• if the entity transfers substantially all the risk and rewards--derecognize and recognizes separately as assets or liabilities
• if the entity retains substantially all the risks and rewards, continues to recognize
• if the entity neither transfers or retains all the risks and rewards, the entity determine if it has retained control---not retained control, derecognize & retained control, continues to recognzie
• if financial asset is transferred in its entirety but the transferring entity retains the right to service the financial asset for a fee, a financial asset or liability is recognized for the servicing contract
• if the fee is inadequate, servicing liability is recognized at fair value
• if the fee is more than adequate, servicing asset is recognized