Page 12 - 23. COMPILER QB - IND AS 109_32

31 March 20X2
Subsequently at the end of the reporting period, financial guarantee is measured at the higher of:

- the amount of loss allowance; and
- the amount initially recognised less cumulative amortization, where appropriate.
At 31 March 20X2, there is 1% probability that Moon Limited may default on the loan in the next 12 months.
If Moon Limited defaults on the loan, Sun Limited does not expect to recover any amount from Moon Limited.
The 12-month expected credit losses are therefore Rs.10,000 (Rs.10,00,000 x 1%).
The initial amount recognised less amortisation is Rs.51,385 (Rs.73,320 + Rs.8,065 (interest accrued based on

EIR)) – Rs. 30,000 (benefit of the guarantee in year 1) Refer table below. The unwound amount is
recognised as income in the books of Sun Limited, being the benefit derived by Moon Limited not defaulting
on the loan during the period.
Year Opening balance EIR @11% Benefits provided Rs. Closing balance

Rs. Rs.
1 73,320 8,065 (30,000) 51,385
2 51,385 5,652 (30,000) 27,037
3 27,037 2,963* (30,000)

* Difference is due to approximation
The carrying amount of the financial guarantee liability after amortisation is therefore Rs. 51,385, which is
higher than the 12-month expected credit losses of Rs. 10,000. The liability is therefore adjusted to Rs.51,385

(the higher of the two amounts) as follows:

Particulars Debit (Rs.) Credit (Rs.)
Financial guarantee (liability) Dr. 21,935
To Profit or Loss 21,935

(Being financial guarantee subsequently adjusted)

31 March 20X3
On 31 March 20X3, there is 3% probability that Moon Limited will default on the loan in the next 12 months.
If Moon Limited defaults on the loan, Sun Limited does not expect to recover any amount from Moon Limited.
The 12-month expected credit losses are therefore Rs.30,000 (Rs.10,00,000 x 3%).
The initial amount recognised less accumulated amortisation is Rs. 27,037, which is lower than the 12-month
expected credit losses (Rs.30,000). The liability is therefore adjusted to Rs.30,000 (the higher of the two

amounts) as follows:
Particulars Debit (Rs.) Credit (Rs.)
Financial guarantee (liability) Dr. 21,385*

To Profit or loss (Note) 21,385
(Being financial guarantee subsequently adjusted)
* The carrying amount at the end of 31 March 20X2 = Rs. 51,385 less 12-month expected credit losses of
Rs.30,000.

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