The simplified approach

Learning objectives

• Determine the instruments subject to the simplified approach (required for trade receivables and contract assets without a significant financing component; policy choice for the others and for lease receivables) and the lifetime loss allowance.L2, L3
• Calculate, from the data of a case, the amounts relating to the simplified approach.L2, L3
• Record the journal entries for the simplified approach and measure their effect on the financial position, profit or loss and other comprehensive income.L2, L3
• Support in writing, from the facts of the case, the judgement made on the simplified approach.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.

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

3 questions

• Tellur SA sells products to customers with payment in 30 days. Its trade receivables have no significant financing component. Which impairment approach does Tellur apply to these receivables?L2
• Dorvane SA applies the simplified approach to its trade receivables, without a significant financing component. Pedagogical assumption: the matrix below gives the loss rates, which are case data. Receivables not yet due: {bal_current} at a rate of {rate_current}; 1 to 30 days past due: {bal_up_to_30} at a rate of {rate_up_to_30}; 31 to 60 days past due: {bal_31_to_60} at a rate of {rate_31_to_60}; more than 60 days past due: {bal_over_60} at a rate of {rate_over_60}. Calculate the total loss allowance.L3
• Rome SA applies the simplified approach to its trade receivables, without a significant financing component. The opening loss allowance is {opening_allowance}; at the reporting date, the lifetime expected losses are estimated at {lifetime_ecl}. Record the entry adjusting the loss allowance.L2