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CMA Final · Corporate Financial Reporting · NBFCs - Provisioning Norms, Accounting and Reporting

An Ind AS-compliant NBFC computes its impairment allowance under Ind AS 109 (expected credit loss) at Rs 80 lakh. The provision required for the same loan book under the RBI's IRACP norms is Rs 95 lakh. What is the treatment of the difference?

The Rs 15 lakh shortfall between the IRACP provision of Rs 95 lakh and the Ind AS allowance of Rs 80 lakh is appropriated from profit after tax to an Impairment Reserve. It is not charged as an expense, so reported P&L impairment stays at the Ind AS figure.

  1. ARs 15 lakh is appropriated from net profit to an Impairment Reserve, with no extra charge to the statement of profit and lossCorrect
  2. BRs 15 lakh is charged as an additional expense in the statement of profit and loss
  3. CRs 95 lakh is charged to profit and loss, replacing the Ind AS 109 allowance
  4. DNo entry is needed because Ind AS 109 overrides the IRACP norms

Explanation

Where the Ind AS 109 allowance is lower than the IRACP provision, the shortfall (95 - 80 = Rs 15 lakh) is appropriated from net profit to a separate Impairment Reserve. The P&L continues to show the Ind AS allowance only. Charging the shortfall to P&L would double-count, and ignoring it breaches the RBI requirement.

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