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Thread: Loan impairment

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    Loan impairment

    I have a question about loan impairments, hope somebody can assist.

    Lets say in financial year 2010 you have a loan account
    8900/001 New Business Venture R 1 000 0000

    During the audit for this financial year the auditors instruct you to impair the loan account because they feel it will not be repaid for R 900 000. They instruct you to use 8900/002.

    First question
    Why does the impairment entry not go into the loan account directly?

    Second Question
    What do both accounts opening balance look like in the new financial year i.e when you roll over to 2011?

    Third question
    Do you now carry these forward every year when you roll over i.e the above would also be your opening balance in 2012?

    Thanks for the assistance in advance, need to get my head wrapped around this!

  2. #2
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    IFRS requires the impairment to be disclosed in the AFS notes, as well as the yearly movements. So typically you would have this scenario
    Opening balance 1,000,000
    Payments / Advances (100,000)
    Impairments (100,000)
    Balance at end of year 800,000 (which is the net of your two accounts)

    The 8900/002 will be the contra of all the impairments charged to income over the years. If repayments are eventually made, the impairment may well be reversed in due course.

    Impairments charged to income (or credited) are not tax deductible (nor taxable). The adjustment is just to arrive at an intrinsic value, and I assume they discounted it.

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    Thank you!

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