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  • Writer's pictureThomas Tsang
    • Feb 15, 2020
    • 1 min read

Expected credit loss

For trade receivable, we apply simplified approach to estimate the ECL rate. We would know the total doubtful debts for the total sales of a year. We can calculate the default rate of total sales by debts over yearly sales. This default rate assumed to be ECL rate for current debts for usual 30 days credit term. This ECL would be the starter rate for current aged debts. The ECL estimated to be increasing when the debts aged. We estimate the incremental ECL rate over the aging receivable up to one year that give rise to the amount of doubtful debts.

Then the ECL rate for each aged group is calculate.

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