IFRS 7 · Case studies (Step 3 of 5)
Case study
Pelvane SA (fictitious entity) sells on credit and lends to distributors. For the closing date of 31 December 20X6, you prepare the credit risk tables for the trade receivables and the loans, and the entries for the loss allowance.
Your assignment
Compute the total gross carrying amount of the receivables by rating grade and the share of the riskiest grade; reconcile the loss allowance from the opening to the closing date; record the charge and the write-off and present their effect; compute the net exposure of the loans after collateral; say what falls within IFRS 7 and IFRS 9; conclude. One document is not useful.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Intermediate level: help remains available, on demand.
Method
File checklist
6 documents: open each one to read it.
Document 1Memo
Pelvane SA (fictitious entity) closes its accounts on 31 December 20X6; its functional currency is the euro. Case conventions: amounts in EUR; case convention (pedagogical assumption, not attributed to IFRS 7): the receivables have a single category of loss allowance; the reconciliation contains no recovery, no transfer and no exchange effect; the entries are illustrative.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Low risk grade | €1,800,000.00 | |
| Medium risk grade | €900,000.00 | |
| High risk grade | €300,000.00 | |
| Gross carrying amount per the ledger | €3,000,000.00 | |
| Loss allowance at the opening date | €120,000.00 | |
| Charge of the year | €85,000.00 | |
| Receivables written off | €25,000.00 | |
| Closing loss allowance reported | €180,000.00 | |
| Maximum exposure before collateral | €1,000,000.00 | |
| Value of collateral held | €650,000.00 | |
| Refit of the offices | €21,000.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Company profile and case conventions
Trade receivables by rating grade
Movements in the loss allowance
Loans to distributors and collateral
Credit risk management practices
Note on the office layout
10 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
What must the table of exposure by rating grade show?
Task 2Calculation
Compute the total gross carrying amount of the receivables.
Part 1 · Calculation
Compute the total gross carrying amount of the receivables.
Task 3Analysis
What share of the gross carrying amount is in the riskiest grade?
Part 1 · Calculation
What share of the gross carrying amount is in the riskiest grade?
Task 4Calculation
Reconcile the loss allowance from the opening to the closing date.
Part 1 · Calculation
Reconcile the loss allowance from the opening to the closing date.
Task 5Journal entries
Record the charge to the loss allowance.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 6Journal entries
Record the write-off of the receivables.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 7Effects on the financial statements
What is the effect of the two entries on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 8Calculation
Compute the net exposure of the loans after collateral.
Part 1 · Calculation
Compute the net exposure of the loans after collateral.
Task 9Analysis
What must the credit risk management practices describe, and which standard measures the expected losses?
Task 10Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 13).
Document this file
These working papers use the data and results of this case.
Normative references