Loss allowance as per Ind AS 109
Can an entity provide a loss allowance greater than the impairment loss allowance as per Ind AS 109?
Previously entities used to provide for losses on certain financial assets on an ad hoc basis that means several practices which are now prohibited expressly as per the new impairment requirements of Ind AS 109. Now it is not possible to provide for impairment loss based on a pre-defined percentage of accounts receivable recognised on an ad hoc basis. The absolute value or pre-defined percentage of expected cash short fall on a non performing asset is also now prohibited. The effect of this is that the profit and loss account cannot be debited with an amount in excess of the impairment loss allowance to be provided based on the requirements of Ind AS 109. The corollary of this is that the carrying amount of the financial assets cannot be reduced by more than the loss allowance determined as per the impairment requirements.