Financial instruments – Impairment
Impairment of lease receivables
The Boards discussed whether an entity should apply the proposed “three-bucket” expected-loss impairment approach to lease receivables, including those recognised under (1) the proposed receivable and residual leases model and (2) existing lease standards (i.e. IAS 17 and ASC 840). More specifically, the Boards discussed two alternatives:
- Measure the impairment allowance in accordance with the proposed three-bucket model, or
- Provide a practical expedient to entities to allow for the measure of the impairment allowance at initial recognition and subsequently on the basis of lifetime expected losses (i.e., consistent with the Boards’ tentative decision for trade receivables with a significant financing component made at the 28 February 2012 joint meeting).
To be consistent with their previous tentative decision on trade receivables with a significant financing component, the Boards tentatively decided that an entity could apply a policy election either to fully apply the “three-bucket” impairment model to all lease receivables (whether under the proposed or existing lease standards) or to apply a simplified model in which those lease receivables would have an allowance measurement objective of lifetime expected credit losses at initial recognition and throughout the lease receivables’ life. The simplified model provides relief because an entity would not be required to track credit deterioration through the buckets of the “three-bucket” model for disclosure purposes.