S1: Under Ind AS 109, the Expected Credit Loss (ECL) model requires recognition of 12-month ECL for all financial assets initially. S2: If there is a significant increase in credit risk since initial recognition, lifetime ECL must be recognized. Which statement(s) is/are correct? MCQ with Answer and Explanation
S1: Under Ind AS 109, the Expected Credit Loss (ECL) model requires recognition of 12-month ECL for all financial assets initially. S2: If there is a significant increase in credit risk since initial recognition, lifetime ECL must be recognized. Which statement(s) is/are correct?
A. Neither S1 nor S2
B. S1 only
C. S2 only
D. Both S1 and S2
Answer: Option D
Solution (By JKSSB Mock Tests)
Ind AS 109 mandates a three-stage ECL model. Stage 1 requires 12-month ECL initially, and Stage 2 requires lifetime ECL if there is a significant increase in credit risk. Both statements are correct.
Explanation:
Provision for Doubtful Debts is a contra asset to Debtors, Bank/Cash is a contra account in the cash book, and Accumulated Depreciation is a contra asset to Fixed Assets.
Goodwill of a firm is valued at 2 years purchase of average profits of last 4 years. Profits: 2019- ₹20,000; 2020- ₹30,000; 2021- ₹40,000; 2022- ₹50,000 (including speculative profit ₹10,000). Average profit for goodwill will be:
Explanation:
Speculative profit is excluded. Normal profit for last year = 40,000 - 10,000 = 30,000. Total profits: 25,000 + 30,000 + 35,000 + 30,000 = 1,20,000. Average = ₹30,000.
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