Removing Receivables from the Doubtful Category under IFRS

Under IFRS, removing a receivable from the doubtful category depends on factors such as its collection status and the debtor's financial position. A receivable may be removed from the doubtful category and treated as a normal trade receivable when the following conditions are met:

1. The receivable is collected

• If the receivable is collected in part or in full, the impairment allowance on it may be reversed.

• The amount collected is recognised in the statement of profit or loss of the period (under TFRS 9, a reversal of an allowance is an impairment gain; in Turkish practice it is usually presented within "other income from operating activities").

2. The debtor's financial position improves

• If the debtor's financial position has improved and the collection risk has disappeared, the impairment allowance may be reversed.

• However, the debtor's improvement must be documented as strong and lasting.

3. Management decision and risk analysis

• When management obtains strong evidence or assurance about collection (for example, a court ruling or a positive outcome of the debtor's bankruptcy proceedings), it may remove the receivable from the doubtful category.

• In that case, the accounting entry is adjusted and the receivable is returned to "trade receivables".

Accounting and reporting

1. Reversal of the impairment allowance

   • The impairment allowance is reversed because of collection or the elimination of the risk, and the reversal is shown in the statement of profit or loss.

   • Journal entry: Debit: Allowance for impairment Credit: Reversal of allowance (impairment gain)

2. Reclassification as a normal trade receivable

   • The receivable is restated to its net carrying amount (the amount expected to be collected).

Key points

• Under the IFRS 9 expected credit loss model, risk must continue to be assessed taking into account credit losses that may arise in the future, even for receivables that were doubtful in the past.

• A change in the classification of doubtful receivables should be supported only by actual collection or reliable evidence. Such reclassifications are closely examined during the company's audit.