Cor pora te rep or ti n g

(1 mark) 
(IFRS 9 knowledge: 2 marks max) 
Credit risk was low at inception. It can be concluded that credit risk has increased 
significantly if, at the reporting date, the credit risk of the asset is no longer low. 
(1 mark) 
It would seem that credit risk has increased significantly since inception. 
(1 mark) 
This is because of the following: 
•
The financial performance and cash generation of Jags have been poor and this 
will have impaired its ability to service its financing obligations 
•
The entity was close to breaching loan covenants at year end. A breach of 
covenants would potentially make loans repayable, thus having a detrimental 
impact on cash flow
•
The decreased bond price appears to be entity specific and is therefore likely 
to reflect market concerns about Jags and its credit risk 
•
External agencies are reviewing the credit rating of Jags, suggesting that credit 
risk has increased since the publication of its latest financial results. 
(1 mark each) 
Due to the increase in credit risk, the loss allowance should be calculated at an 
amount equal to lifetime expected credit losses. 
(1 mark)
Increases/decreases in the allowance will be charged to profit or loss.