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Financial instruments

Example 2

An entity has a $1 million loan asset measured at amortised cost.

Credit risk is low at the year end. There is a 0.5% risk of default in the next 12
months and the entity estimates that 25% of the gross carrying amount of the
asset will be lost if default occurs.

The loss allowance is $1,250 (0.5% × 25% × $1m)

Illustrations and further practice

Now try TYU question 9 from Chapter 11.

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