Losses that reflect the expected or potential credit losses that may arise as to an entity’s financial assets due to deterioration in its ability to collect interest and redeem the face value of such assets at maturity date. Impairment losses usually arise from loans, receivables, and similar types of extended credit.

Impairment losses need to be recognized when there is objective evidence on the impairment as a consequence of an event or more events (loss event/s) that occurred after the initial recognition of the asset and such event affects the reliability of the estimated future cash flow of the financial asset or the group of financial assets. For example, a loan is impaired and an impairment loss incurred when there is objective evidence that events since the loan was extended have adversely affected expected cash flows from the loan. The impairment loss represents the difference between the carrying value of the loan and the present value of estimated future cash flows discounted at the loan’s original effective interest rate.

Provision for impairment losses (impairment loss provision) is charged on such assets using historical data (management’s expertise over the time), personal judgment and statistical methods.