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Under Ind AS 109, "12-MONTH EXPECTED CREDIT LOSSES" are defined as:
A12 months' worth of contractual interest on the outstanding balance
BThe portion of LIFETIME expected credit losses representing the ECL from default events possible within the 12 months after the reporting date
CThe credit losses that the entity expects to actually incur within the next 12 months, calculated at face value
DThe maximum loss the entity could incur in any 12-month period over the asset's life
Answer & Solution
Correct answer: B. The portion of LIFETIME expected credit losses representing the ECL from default events possible within the 12 months after the reporting date
Appendix A — 12-month ECL is a SUBSET of lifetime ECL: the portion attributable to default events possible within 12 months after the reporting date. It is NOT 12 months of actual cash shortfalls; it's a probability-weighted measure across all possible defaults that could occur in that window. Lifetime ECL covers all possible defaults over the asset's remaining life.
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