Hello the community,
I found this illustration on Expected Credit Losses (ECL) for Fair Value through Other Comprehensive Income (FVOCI) instruments from a PwC doc (photos below or link – p21). I am not sure I understand all the accounting treatments, so could you please help me with the following:
I found this illustration on Expected Credit Losses (ECL) for Fair Value through Other Comprehensive Income (FVOCI) instruments from a PwC doc (photos below or link – p21). I am not sure I understand all the accounting treatments, so could you please help me with the following:
- I understand the CU30 ECL is recognized when the instrument is acquired on Dec 15 (and NOT on Dec 31), is that correct?
- When ECL is recognized, the accumulated impairment loss account, which is a contra asset account, is credited (decreased) by CU30, with no impact on the Financial asset – FVOCI account which remains at faire value (FV) on the balance sheet, correct?
- On Dec 31, when the FV of the instrument has decreased to CU950, I don’t understand why the ECL is recognized in the P&L. I understood ECL for FVOCI instruments has no impact on the P&L? The contra asset account “accumulated impairment loss account” is debited (increase in value) by the same amount at the same time correct?
- On Dec 31, why is a new ECL of CU50 not created? And instead the existing ECL (CU30) is recognized, and the remaining portion (CU20) is recognized as a loss in OCI? Why isn’t the entire amount (CU50) recognized as a loss in OCI?
- Let’s consider the reverse scenario: the purchase of CU1,000 debt instrument with a value of CU1,050 at Dec 31. What would be the impact on ECL and the financial statements?