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Under Ind AS 109, when measuring ECL for trade receivables using a PROVISION MATRIX (e.g., 0.3% current, 1.6% 1-30 days past due, etc.), the entity must:
AUse historical credit-loss experience as a starting point, adjusted for FORWARD-LOOKING macroeconomic forecasts and current conditions
BUse only historical credit-loss experience over the past three years — forward-looking estimates are too speculative
CUse the average industry default rates published by CRISIL or equivalent rating agencies
DUse the prudential bank ECL rates published by RBI as a baseline
Answer & Solution
Correct answer: A. Use historical credit-loss experience as a starting point, adjusted for FORWARD-LOOKING macroeconomic forecasts and current conditions
Para B5.5.35 — the provision matrix uses historical observed default rates as a starting point but ALSO requires adjustment for forward-looking information (economic forecasts) and current conditions. "Reasonable and supportable information that is available without undue cost or effort" is the threshold. RBI rates or industry agency rates may inform but are not the primary basis.
Related questions
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