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

An NBFC preparing Ind AS financial statements computes expected credit loss (ECL) under Ind AS 109 of ₹4 lakh for Stage 1, ₹6 lakh for Stage 2 and ₹8 lakh for Stage 3 assets. Provisioning under the RBI IRACP norms for the same portfolio is ₹24 lakh. What is the amount to be appropriated from profit to the Impairment Reserve?

The amount is ₹6 lakh. Total Ind AS ECL is ₹18 lakh, while the RBI IRACP provision is ₹24 lakh. The shortfall is appropriated from profit to the Impairment Reserve. It is not charged to the statement of profit and loss.

  1. A₹24 lakh
  2. B₹18 lakh
  3. C₹6 lakhCorrect
  4. DNil, since ECL is already recognised in the statement of profit and loss

Explanation

Total ECL = 4 + 6 + 8 = ₹18 lakh, already charged to profit or loss. IRACP provision is ₹24 lakh, which is higher, so the shortfall of 24 − 18 = ₹6 lakh is transferred from retained earnings to the Impairment Reserve as an appropriation, not a P&L charge. Transferring the full ₹24 lakh would double count the ECL already provided.

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