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The following scenarios describe ledger entries for paydowns when you use asset-level expected credit loss (ECL).
Paydown for IFRS – FVOCI
The entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900 and a factor of 1. The lot subsequently has an expected credit losses of $30 applied to it.
Ledger entries follow for an IFRS accounting basis with an FVOCI (Fair Value - Other Comprehensive Income) regulatory category.
Ledger Account | Ledger Acct Name | Dr | Cr |
1310000100 | COST OF INVESTMENTS-FV-OCI | 900 | |
2002000100 | INVESTMENT PAYABLE | 900 | |
5301000902 | IMPAIRMENT EXPENSE FOR ECL-FV-OCI | 30 | |
3305000406 | ALLOWANCE FOR ECL-FV-OCI | 30 |
10% of the position is paid down with a gain of $10. Because 10% of the position is being closed, $3 of ECL is proportionally reduced, the gain becomes $13.
Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Realized Gain/Loss
Ledger Account | Ledger Acct Name | Dr | Cr |
1310000100 | COST OF INVESTMENTS-FV-OCI | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
3303000301 | UNREALIZED GAINS FV-OCI - OCI | 13 | |
3306000103 | REALIZED GAINS FV-OCI – FROM OCI | 13 | |
3006000101 | REALIZED GAIN ON INVESTMENTS - FV-OCI | 13 | |
3305000406 | ALLOWANCE FOR ECL-FV-OCI | 3 |
Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Accelerated Amortization
Ledger Account | Ledger Acct Name | Dr | Cr |
1310000100 | COST OF INVESTMENTS-FV-OCI | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
4001000401 | AMORTIZATION OF PREMIUM | 10 | |
5301000902 | IMPAIRMENT EXPENSE FOR ECL-FV-OCI | 3 | |
3305000406 | ALLOWANCE FOR ECL-FV-OCI | 3 |
Paydown for IFRS – AC
The entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900 and a factor of 1. The lot subsequently has an expected credit losses of $30 applied to it.
Ledger entries follow for an IFRS accounting basis with an AC (Amortized Cost) regulatory category.
Ledger Account | Ledger Acct Name | Dr | Cr |
1610000100 | COST OF INVESTMENTS-AC | 900 | |
2002000100 | INVESTMENT PAYABLE | 900 | |
5601000902 | IMPAIRMENT EXPENSE FOR ECL-AC | 30 | |
1610010419 | ALLOWANCE FOR ECL-AC | 30 |
10% of the position is paid down with a gain of $10. Because 10% of the position is being closed, $3 of ECL is proportionally reduced, the gain becomes $13.
Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Realized Gain/Loss
Ledger Account | Ledger Acct Name | Dr | Cr |
1610000100 | COST OF INVESTMENTS-AC | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
3006000101 | REALIZED GAIN ON INVESTMENTS | 13 | |
1610010419 | ALLOWANCE FOR ECL-AC | 3 | |
Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Accelerated Amortization
Ledger Account | Ledger Acct Name | Dr | Cr |
1610000100 | COST OF INVESTMENTS-AC | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
4001000401 | AMORTIZATION OF PREMIUM | 10 | |
5601000902 | IMPAIRMENT EXPENSE FOR ECL-AC | 3 | |
1610010419 | ALLOWANCE FOR ECL-AC | 3 |
Paydown for US GAAP – AFS
The entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900 and a factor of 1. The lot subsequently has an expected credit losses of $30 applied to it.Ledger entries follow for a GAAP accounting basis with an AFS (Available for Sale) regulatory category.
Ledger Account | Ledger Acct Name | Dr | Cr |
1310000100 | COST OF INVESTMENTS-AFS | 900 | |
2002000100 | INVESTMENT PAYABLE | 900 | |
5301000902 | IMPAIRMENT EXPENSE FOR ECL-AFS | 30 | |
1310010419 | ALLOWANCE FOR ECL-AFS | 30 |
10% of the position is paid down with a gain of $10. Because 10% of the position is being closed, $3 of ECL is proportionally reduced. Note that the gain/loss is not impacted by the reduction in ECL.
Principal Loss on Paydown Processing Flag (Tag 2925) on Accounting Basis = Realized Gain/Loss
Ledger Account | Ledger Acct Name | Dr | Cr |
1610000100 | COST OF INVESTMENTS-AFS | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
5301000902 | IMPAIRMENT EXPENSE FOR ECL-AFS | 3 | |
1310010419 | ALLOWANCE FOR ECL-AFS | 3 | |
3006000101 | REALIZED GAIN ON INVESTMENTS | 10 | |
3306000103 | REALIZED GAINS-AFS-FROM OCI | 10 | |
3303000301 | UNREALIZED GAINS-AFS-OCI | 10 |
Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Accelerated Amortization
Ledger Account | Ledger Acct Name | Dr | Cr |
1610000100 | COST OF INVESTMENTS-AFS | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
5301000902 | IMPAIRMENT EXPENSE FOR ECL-AFS | 3 | |
1310010419 | ALLOWANCE FOR ECL-AFS | 3 | |
4001000401 | AMORTIZATION OF PREMIUM | 10 |
Paydown for US GAAP – HTM
The entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900 and a factor of 1. The lot subsequently has an expected credit losses of $30 applied to it.Ledger entries follow for a GAAP accounting basis with an HTM (Held to Maturity) regulatory category.
Ledger Account | Ledger Acct Name | Dr | Cr |
1310000100 | COST OF INVESTMENTS-HTM | 900 | |
2002000100 | INVESTMENT PAYABLE | 900 | |
5501000902 | IMPAIRMENT EXPENSE FOR ECL-HTM | 30 | |
1510010419 | ALLOWANCE FOR ECL-HTM | 30 |
Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Realized Gain/Loss
Ledger Account | Ledger Acct Name | Dr | Cr |
1610000100 | COST OF INVESTMENTS-HTM | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
5501000902 | IMPAIRMENT EXPENSE FOR ECL-HTM | 3 | |
3006000101 | REALIZED GAIN ON INVESTMENTS | 10 | |
1510010419 | ALLOWANCE FOR ECL-HTM | 3 |
Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Accelerated Amortization
Ledger Account | Ledger Acct Name | Dr | Cr |
1610000100 | COST OF INVESTMENTS-HTM | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
5501000902 | IMPAIRMENT EXPENSE FOR ECL-HTM | 3 | |
4001000401 | AMORTIZATION OF PREMIUM | 10 | |
1510010419 | ALLOWANCE FOR ECL-HTM | 3 |
Impairments ECL Scenarios
The following scenarios describe ledger entries for impairments when you use asset-level expected credit loss (ECL).Impairment for IFRS – FVOCI
On 1 January 2020, the entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900. The lot subsequently has an expected credit losses of $30 applied to it.- This security is deemed to be impaired, the user books a writedown transaction which will update the Stage to 3. The new amortized cost is $880 so the writedown is for ($900 - $880 = $20). The following ledger entries will be booked:
- This security is deemed to be impaired, the user books a writedown transaction which will update the Stage to 3. The new amortized cost is $850 so the writedown is for ($900 - $850 = $50). The following ledger entries will be booked:
Impairment for IFRS – AC
On 1 January 2020, the entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900. The lot subsequently has an expected credit losses of $30 applied to it.| Ledger Account | Ledger Acct Name | Dr | Cr | ||||||||
| 1610000100 | COST OF INVESTMENTS-AC | 900 | 2002000100 | INVESTMENT PAYABLE | 900 | 5601000902 | IMPAIRMENT EXPENSE FOR ECL- AC | 30 | 1610010419ALLOWANCE FOR ECL-AC | 30 |
3 |
- This security is deemed to be impaired, the user books a writedown transaction which will update the stage to 3. The new amortized cost is $850 so the writedown is for ($900 - $850 = $50). The following ledger entries will be booked:
Impairment for GAAP – AFS
On 1 January 2020, the entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900. The lot subsequently has an expected credit losses of $30 and Non-Credit loss of $40 applied to it (i.e. the present value is deemed to be $870, the market value is $830).- This security is deemed to be impaired, the user books a writedown transaction against the lot. The new amortized cost is $880 so the writedown is for ($900 - $820 = $20). The following ledger entries will be booked:
This security is deemed to be impaired, the user books a writedown transaction against the lot. The new amortized cost is $850 so the writedown is for ($900 - $850 = $50). The following ledger entries will be booked:
In each case, the Expected Credit Loss offsets to Cost until no ECL remains, any remaining amount offsets to Realized Losses – Impairments.
Impairment for GAAP – HTM
On 1 January 2020, the entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900. The lot subsequently has an expected credit losses of $30 applied to it.
- This security is deemed to be impaired, the user books a writedown transaction against the lot. The new amortized cost is $850 so the writedown is for ($900 - $850 = $50). The following ledger entries will be booked:
| Ledger Account | Ledger Acct Name | Dr | Cr | ||||||
| 1510000100 | COST OF INVESTMENTS-HTM | 50 | 5501000902 | IMPAIRMENT EXPENSE FOR ECL-HTM | 20 | 1510010419 | ALLOWANCE FOR ECL-HTM | 30 |