What are the general rules for measuring and recognizing an impairment of a receivable?
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What are the general rules for measuring and recognizing an impairment of a receivable?
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General Rules for Measuring and Recognizing an Impairment of a Receivable When it comes to measuring and recognizing an impairment of a receivable there are general rules that need to be followed An impairment of a receivable occurs when there is a decrease in the expected future cash flows from the receivable The following are the general rules for measuring and recognizing an impairment of a receivable Identifying Impairment The first step is to identify whether there are any indicators of impairment for the receivable Indicators may include financial difficulties of the debtor default or delinquency in payments or economic conditions that could affect the debtors ability to pay Estimating Impairment Loss Once an impairment indicator is identified the next step is to estimate the impairment loss This involves comparing the carrying amount of the receivable to its recoverable amount The recoverable amount is the higher of the present value of expected cash flows or the fair value less costs to sell Recognition of Impairment Loss If the carrying amount of the receivable exceeds its recoverable amount an impairment loss needs to be recognized The impairment loss is calculated as the difference between the carrying amount and the recoverable amount Recording Impairment Loss The impairment loss should be recorded in the financial statements as an expense in the period in which it is identified The allowance account for doubtful debts should be adjusted accordingly Reversal of Impairment Loss If there is a subsequent increase in the recoverable amount of a previously impaired receivable the ...View the full answer
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Related Book For
Intermediate Accounting IFRS Edition
ISBN: 9781118443965
2nd Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
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