Published On - Jul 31, 2025
In Year 1, the entity recognized a provision for doubtful debts amounting to INR100 crore on receivables measured at amortized cost. In the current financial year, the entity recovered INR 20 crores from the customer as full and final settlement of the receivable.
How should the entity present (a) the expected credit loss (previously referred to as “provision for doubtful debts”), (b) the reversal of such loss due to subsequent recovery, and (c) any resulting gain or loss on derecognition or settlement, in the Statement of Profit and Loss (P&L) prepared in accordance with Indian Accounting Standards (Ind AS)?
Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets defines the term ‘provision’ as “a liability of uncertain timing or amount.” Accordingly, the term ‘provision’ should generally be used in a similar context. The phrase ‘Provision for doubtful debts’ is therefore not appropriate when referring to expected credit losses (ECL) recognized on receivables under Ind AS 109 Financial Instruments. Instead, the correct terminology under Ind AS 109, and also as reflected in Division II of Schedule III (Ind AS Schedule III) to the Companies Act, 2013, is Expected Credit Losses (ECL) on financial assets.
Paragraph 82 of Ind AS 1 Presentation of Financial Statements, requires that the following line items be presented separately on the face of the Statement of Profit and Loss:
The prescribed format of the Statement of Profit & Loss under Ind AS Schedule III also requires similar line items to be presented separately on its face. Furthermore, paragraph 113(b) of Ind AS 115 Revenue from Contracts with Customers requires entities to disclose, among other matters, the amount of impairment losses recognized under Ind AS 109 on receivables or contract assets, unless such amounts are already presented separately in the P&L in accordance with other standards.
In view of the above requirements, particularly Ind AS 1 and Schedule III, impairment losses on receivables and their subsequent reversal must be presented as separate line items on the face of the Statement of Profit and Loss. These should not be included under headings such as ‘Other Expenses’ or ‘Other Income.
Similarly, any gain or loss arising from the derecognition of financial assets/ receivables measured at the amortized cost should also be presented separately on the face of the Statement of Profit and Loss. Such gain/ loss is determined as the difference between-
In this case:
The entity recovered INR20 crore as full and final settlement.
As a result, a settlement gain of INR20 crore should be recognized in the current year and presented separately on the face of the Statement of Profit and Loss as “Gain on derecognition of financial assets measured at amortized cost”.
It may also be noted that a recent opinion issued by the
Expert Advisory Committee (EAC) of the Institute of Chartered
Accountants of India, on the subject “Classification of
‘Provision for doubtful debts no longer required written back’
as ‘Other Income’ or ‘Other Operating Revenue’,” supports
the above position and emphasizes the need for appropriate
terminology and presentation in line with Ind AS 109 and Ind
AS 1.