Question $2$

$($Adapted from past exam paper $-$ resit $2020-21)$

The following is an extract from the statement of financial position of Bowler plc at $31$ December

$2023$:

Notes

$(1)$ On $1$ January $2023$ Bowler plc bought a financial asset at fair value of $2\mathrm{.}1$ million. The

effective interest rate on the loan is $5\mathrm{.}2\%.$ The following information is relevant to the

financial asset:

$?$ On $1$ January $2023,$ the financial asset had a low credit risk. The probably of default in

the next $12$ months was estimated at $2\%$ with lifetime credit losses of $300,000.$

$?$ On $31$ December $2023,$ there had been no significant deterioration in credit quality. The

probably of default had risen slightly to $2\mathrm{.}5\%.$ The lifetime credit losses were still

estimated at $2\mathrm{.}1$ million.

$(2)$ The gross amount of trade receivables at $31$ December $2023$ is $13,940,000.$ The loss

allowance for trade receivables at $31$ December $2022($the previous year end$)$ was $420,000.$

Trade receivables at $31$ December $2023$ have been aged as follows:

Required:

$($a$)$ Explain what is meant by impairment of financial assets and identify three indicators of

impairment for financial assets.

$($b$)$ Compare and contrast the accounting treatment for impairment of assets included within the

financial statements of Bowler plc$.$ Ignore $(1)$ and $(2).$ Note: as part of your answer you should

explain the reasons for any differences in approaches taken.

$($c$)$ For each of items $(1)$ and $(2)$ above, explain the IFRS reporting treatment. Prepare all relevant

calculations and show all journal entries.