Hi, I was wondering how the behaviour should be in when writing off a loan with accrued interest.
For example, if I had a loan with a principal balance of 100.000 and a 50.000 of accrued interest (which is recognized income): if I write off a loan, it is clear that the 100.000 of principal should be debited into a Write Off account, but the 50.000 what would be the best accounting practice?
1) Recognized income stays as it is but we INCREASE BAD DEBT (or applicable account)
2) We decrease recognized income
I've been reading the IFRS 9 and it mainly speaks how to move forward with the calculation of interest, but it is unclear to me what to do with the already recognized interest revenues.
Thank you.
Accrued Interest - Loan Write Off
Re: Accrued Interest - Loan Write Off
Depends on the wording in the loan agreement as to the contractual period over which interest accrues. But if it's contractually due, then the bad debt is the entire amount including accrued interest.
Are you writing off, or raising a 100% credit loss provision?
Are you writing off, or raising a 100% credit loss provision?
- JakobLavrod
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Re: Accrued Interest - Loan Write Off
Agree with JRSB:s conclusion. Something important is however when the loan went to stage 3 (I assumed it sits there now since you are ready to write it off). When in stage 3 you only recognize interest income on amortize cost, so anything provisioned for acts like non-interest bearing. Has part of the interest accrued come from this stage 3 period, that need to be adjusted for.
IFRS 9 Impairment Specialist
Risk Control at Svenska Handelsbanken
Risk Control at Svenska Handelsbanken
Re: Accrued Interest - Loan Write Off
good point, the entity might have initially recognised too much interest revenue