The provision matrix

Learning objectives

• Calculate the loss allowance for a portfolio of receivables using a provision matrix (loss rates by ageing band, adjusted for forward-looking information).L2, L3
• Record the journal entries for the provision matrix and measure their effect on the financial position, profit or loss and other comprehensive income.L2, L3
• Prepare a workpaper documenting the provision matrix.L2, L3

Normative references

• IFRS 9 §5.5.15Simplified approach: the loss allowance is always measured at an amount equal to lifetime expected credit losses, without stages, for trade receivables and contract assets that do not contain a significant financing component (including when the IFRS 15 practical expedient is applied); for those that contain a significant financing component and for lease receivables (IFRS 16), the entity chooses this approach as its accounting policy, applied separately to each type of asset; this paragraph overrides paras. 5.5.3 and 5.5.5.
• IFRS 9 §B5.5.35Provision matrix: loss rates are applied by ageing band (days past due), based on the entity's historical default experience and adjusted for forward-looking information; separate groupings are appropriate if historical experience shows significantly different loss patterns for different segments; the method is not mandatory and the estimate remains unbiased and probability-weighted.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Teta SA applies a provision matrix to its trade receivables without a significant financing component. The loss rates by ageing bucket, established from history and adjusted for forward-looking information, are given by the case. Balances and rates: not yet due {balance_not_due} at {rate_not_due}; 1 to 30 days {balance_1_30} at {rate_1_30}; 31 to 90 days {balance_31_90} at {rate_31_90}; over 90 days {balance_over_90} at {rate_over_90}. Calculate the loss allowance of the 31 to 90 days bucket, then the total loss allowance.L2
• How are the loss rates of a provision matrix established?L2
• At the reporting date, Teta SA's provision matrix gives a total loss allowance of {matrix_total} for its trade receivables. The loss allowance recognised at the start is {opening_allowance}, and no write-off took place during the year. Record the adjusting entry.L3