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An entity's portfolio of trade receivables has varied customer profiles (some wholesale, some retail; different geographies). Under Ind AS 109's provision matrix approach:
AApply a single matrix to the entire portfolio for consistency
BApply a different matrix to each individual customer, regardless of significance
CThe entity should SEGMENT receivables by shared credit risk characteristics (e.g., customer type, geography) and apply separate default-rate matrices per segment when patterns differ significantly
DUse only the riskiest customer segment's default rates across the whole portfolio
Answer & Solution
Correct answer: C. The entity should SEGMENT receivables by shared credit risk characteristics (e.g., customer type, geography) and apply separate default-rate matrices per segment when patterns differ significantly
Para B5.5.35 — diversity of customer profile is exactly when segmentation by shared risk characteristics is appropriate. Apply separate matrices per segment when loss patterns differ. Customer-by-customer is too granular for the provision matrix expedient (which exists precisely for portfolios). Using only the riskiest segment's rates would overstate the loss allowance.
Related questions
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