Monday, November 17, 2008

#53- General Provision on Doubtful Debt

In some instances, general provision for doubtful debt is provided for accoridng to the age of the outstanding debt. However, General provision for doubtful receivable is no longer allowed subsequent to the implementation of IAS 39.

IAS 39 states that:

“A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.”

As such, impairment loss should be recognized when, subsequent to the initial recognition of the receivable, an event has happened which causes the receivable to be impaired. General provision provided according to age of the outstanding is no longer allowed. A financial asset should be impaired if, and only if, there is objective evidence of impairment.

1 comment:

Tim said...

Can't the economical crisis be considered as an objective event, justifying the creatin of a general accrual for bad debt?