Provisioning on bad/impaired credits


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Hi everyone,
can anyone enlighten me in general what is the approach for calculating provisioning on bad credits?
Furthermore, as far as I know there is a difference if it is from credit risk or accounting perspective?
BR
 
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Fidget

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It depends upon which accounting standards you're using. It's become quite involved these days and I'm not sure to what extent there's uniformity amongst them. IFRS now allows a provision for expected credit losses but how detailed the calculation of it has to be depends on the operating activities of the organisation.
 
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Provision methods:
1. Percentage of sales method = a provision for bad debts wherein a certain percentage is multiplied to the net sales for the year
2. Percentage of A/R method = a certain percentage is multiplied to the net realizable value of A/R to arrive in the ending allowance account of bad debts
3. aging method = individual A/R balances are aged to determine w/c accounts are due and not past due
 

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