Impact of impairment requirements on first-time adoption

How do the impairment requirements impact on first-time adoption?

  • An entity shall apply the impairment requirement retrospectively.
  • At the date of transition to Ind ASs, an entity shall use reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognised (or for loan commitments and financial guarantee contracts the date that the entity became a party to the irrevocable commitment and compare that to the credit risk at the date of transition to Ind ASs.
  • An entity should seek to approximate the credit risk on initial recognition by considering all reasonable and supportable information that is available without undue cost or effort. An entity is not required to undertake an exhaustive search for information when determining, at the date of transition to Ind ASs, whether there have been significant increases in credit risk since initial recognition. If an entity is unable to make this determination without undue cost or effort.
  • In order to determine the loss allowance on financial instruments initially recognised (or loan commitments or financial guarantee contracts to which the entity became a party to the contract) prior to the date of initial application, both on transition and until the derecognition of those items, an entity shall consider information that is relevant in determining or approximating the credit risk at initial recognition. In order to determine or approximate the initial credit risk, an entity may consider internal and external information, including portfolio information.
  • When determining whether there has been a significant increase in credit risk since initial recognition, an entity may apply the rebuttable presumption for contractual payments that are more than 30 days past due if an entity will apply the impairment requirements by identifying significant increases in credit risk since initial recognition for those financial instruments on the basis of past due information.
  • If, at the date of transition to Ind ASs, determining whether there has been a significant increase in credit risk since the initial recognition of a financial instrument would require undue cost or effort, an entity shall recognise a loss allowance at an amount equal to lifetime expected credit losses at each reporting date until that financial instrument is derecognised (unless that financial instrument is low credit risk at a reporting date.

Recognition of financial instruments on first-time adoption

Recognition of financial instruments on first-time adoption Financial assets and financial liabilities are allowed to be recognised at fair value only on initial recognition, subject to the fulfilment of certain requirements. How are these dealt with during first-time adoption? An entity is required to measure a financial asset or financial liability …
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Difference between mandatory exceptions and optional exemptions

Difference between mandatory exceptions and optional exemptions What is the difference between mandatory exceptions and optional exemptions? Whenever an entity follows an accounting standard as prescribed by Ind AS, then the entity is required to comply with the standard from the inception of the entity and make necessary changes in its financial …
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Derecognise financial assets/financial liabilities retrospectively

Derecognise financial assets/financial liabilities retrospectively Can an entity derecognise financial assets/financial liabilities retrospectively? Financial assets and liabilities that are derecognised as per the previous GAAP requirements should not be recognised as per Ind AS merely because the previous derecognition as per the previous GAAP is not consistent with the Ind AS requirements …
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Hedge accounting be applied only prospectively

Hedge accounting be applied only prospectively Why should hedge accounting be applied only prospectively and not retrospectively? To implement hedge accounting, there should be a complete set of documentation available that fully describes a hedging relationship including designation of hedged item, hedging instrument and several other requirements. On first-time adoption, the …
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Accounting for an undesignated fair value hedge

Accounting for an undesignated fair value hedge When an entity adopts Ind AS for the first time, how will an undesignated fair value hedge be accounted for? At the transition date, it is likely that hedging instruments may not be recognised or valued. So, an entity as on the date of transition …
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Treatment when hedge accounting not qualified

Treatment when hedge accounting not qualified An entity follows hedge accounting as per previous GAAP. However, the same does not qualify for hedge accounting as per Ind AS 109. What should the entity do? If a hedging relationship does not qualify for hedge accounting as per Ind AS 109, such hedge accounting …
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First-time adoption while classifying a financial instrument

First-time adoption while classifying a financial instrument There are several judgemental decisions which an entity is required to make at the inception of a financial instrument. What should an entity do on first-time adoption to classify and measure such financial instrument? The conditions for classification and measurement of financial assets are …
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Effective rate of interest during the first-time adoption

Effective rate of interest during the first-time adoption How will the effective rate of interest be computed during the first-time adoption? Effective interest rate is a key concept that runs through the entire gamut of Ind AS standards, more so for the financial instruments, as the interest element, be it revenue …
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Treatment of embedded derivatives on first-time adoption?

Treatment of embedded derivatives on first-time adoption? How are embedded derivatives treated on first-time adoption? As per Ind AS 101, the assessment of embedded derivative that requires to be separated from the host contract and accounted for as a derivative should be based on the conditions that existed on the date …
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Designate a previously recognised financial instrument

Designate a previously recognised financial instrument How should an entity designate a previously recognised financial instrument? A financial liability may be designated as a liability measured at fair value through profit or loss provided it eliminates or significantly reduces the accounting mismatch. The requirement for such a designation is that it must …
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