CFM5153a - Taxing loan relationships: IAS accounts: impairment - example

Impairment - example

A bank has statistical evidence, based on data gathered over a number of years, that a rise in mortgage rates correlates with an increase in credit card default by customers with a poor credit history. In 2007, mortgage rates increase, and the bank recognises an impairment loss – calculated in accordance with the statistical data – on its portfolio of credit card debts owed by this customer group. The impairment loss – provided it is correctly calculated - accords with IAS 39, even though it can’t be identified with individual amounts owed by individual customers, and it will be allowable for tax purposes.