BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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12-month expected credit losses
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Full lifetime expected credit losses
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Monthly expected credit losses
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None of the foregoing
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Detailed explanation-1: -Expected credit losses are determined by multiplying the probability of default (i.e., the probability the asset will default within the given time frame) by the loss given default (the percentage of the asset not expected to be collected because of default).
Detailed explanation-2: -What is Allowance For Credit Losses? Allowance for credit losses is an estimate of the debt that a company is unlikely to recover. It is taken from the perspective of the selling company that extends credit to its buyers.
Detailed explanation-3: -The expected credit loss of each sub-group determined in Step 1 should be calculated by multiplying the current gross receivable balance by the loss rate. For example, the specific adjusted loss rate should be applied to the balance of each age-band for the receivables in each group.
Detailed explanation-4: -The estimate of expected credit losses under both standards should consider historical information (past events), information about current conditions, and reasonable and supportable forecasts of future events and economic conditions, as well as estimates of prepayments.