Glossary
Bad debt provision
M1.06 · M2.06Also called provision for doubtful debts, expected credit loss, ECL.
An estimate of the receivables that will never be collected, charged to profit and deducted from the receivables balance.
A company with ₹640 crore of receivables providing 4.5% carries ₹28.8 crore.
The current standard requires an expected credit loss approach, which provides for likely future losses rather than waiting for evidence of default. In practice the provision is set from an ageing matrix with a loss rate for each bucket, all of it disclosed.
The signal worth watching is the provision as a percentage of receivables against the ageing trend. If the ageing is deteriorating and the percentage is flat, the two disclosures contradict each other.