General Approach

The General Approach is for all instruments that are within the scope of IFRS 9 except for Lease Receivables, Trade Receivables, Loan Commitments, Contract Assets, and any other instruments that are Purchased or Originated Credit Impaired.

Under this approach, the standard requires the entity to measure the significance of an Increase in Credit Risk of the instrument, from its initial recognition. Based on the outcome, the entity provides for a 12 Month Expected Credit Loss or a Lifetime Expected Credit Loss.

• If the entity decides that there is No Significant Increase in Credit risk, then the Allowance is equal to the 12 Month Expected Credit Loss.
• If the entity decides that there is a Significant increase in Credit Risk, then the Allowance is equal to the Lifetime Expected Credit Loss.

The standard also provides detailed guidance on the factors to be considered to decide the significance of an increase in the credit risk of an Instrument. If the instrument becomes impaired, the Allowance is equal to the difference between the Gross Carrying Amount and the present value of the expected cash flows.