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ACCA Strategic Professional · Strategic Business Reporting (International) · Financial instruments

Dara plc holds a portfolio of trade receivables with no significant financing component. Under IFRS 9, which approach to measuring the loss allowance on these receivables is required?

Trade receivables without a significant financing component must use the simplified approach, so the loss allowance is measured at lifetime expected credit losses from initial recognition. No assessment of significant increases in credit risk is needed, and the old incurred loss model no longer applies.

  1. ALifetime expected credit losses from initial recognition, with the simplified approach mandatoryCorrect
  2. B12-month expected credit losses at initial recognition, moving to lifetime only on default
  3. CIncurred losses only when objective evidence of impairment exists
  4. DLifetime expected credit losses only once the receivable is more than 90 days past due

Explanation

IFRS 9 requires the simplified approach for trade receivables without a significant financing component, so the allowance is always lifetime ECL. The 12-month approach applies only to the general model at initial recognition, and the incurred loss model was replaced. The 90-day point is only a rebuttable presumption relating to default or significant increase in credit risk, not a trigger for lifetime ECL under the simplified approach.

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