Reduce the gross asset when the recovery test is met
Under paragraph 5.4.4 of Ind AS 109, a company directly reduces the gross carrying amount when it has no reasonable expectation of recovering all or an identified portion of a financial asset. The write-off is a derecognition event for that amount. It differs from increasing the expected credit loss allowance while the asset remains recognised. Paragraph B5.4.9 illustrates a partial write-off when collateral is the only reasonable source of recovery: if only 30% is expected from that collateral and no further cash flows are reasonably expected, write off the remaining 70%.
Read the applicable text: MCA Ind AS 109: paragraphs 5.4.4, B5.4.9 and section 5.5 MCA Ind AS 107: paragraphs 35F(e), 35H and 35L.
Build a recovery evidence file
For an amortised-cost receivable, document realistic sources, ownership and ranking of collateral, estimated realisations, costs and timing, and the credibility of unsecured recoveries. Reconcile the portion with no reasonable recovery expectation to gross carrying amount. For the separate ECL estimate, use the applicable probability-weighted and discounted cash shortfalls. Under paragraph B5.5.55, consider expected cash flows from collateral and other credit enhancements that are part of the contractual terms and are not recognised separately, including relevant costs to obtain and sell the collateral. Mere age, default or a fixed approval date is insufficient without evidence for the conclusion. A potential shortfall in recoveries does not turn every associated cash flow into a write-off.
Run a gross and allowance bridge
Update expected credit losses using the applicable Ind AS 109 model. When posting the write-off, apply the allowance associated with the part written off and charge any incremental impairment once, either through the allowance update or the write-off bridge, with no duplication. Reassess the allowance for the remaining recognised balance; cash-flow timing and other risks can still create impairment there. Reconcile opening and closing gross balances, allowance, net carrying amount and profit or loss separately.
Keep enforcement and reporting records
A write-off need not extinguish the legal right to pursue recovery. Maintain an enforcement register independent of the recognised asset ledger. Ind AS 107 paragraph 35L calls for the contractual amount outstanding on financial assets written off during the reporting period and still subject to enforcement activity. Do not simply report a gross accounting movement as contractual exposure. Review paragraph 35F(e) for write-off policy disclosures and paragraph 35H for allowance reconciliation. Apply tax or regulatory write-off tests separately.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Collateral covers a portion
Gross carrying amount is ₹100 lakh and only ₹30 lakh is reasonably recoverable, ignoring timing in this illustration. With ₹70 lakh already provided against the unrecoverable part, debit the allowance and credit the gross asset by ₹70 lakh. Assume the retained ₹30 lakh requires no further allowance in this simplified example: gross and net each close at ₹30 lakh.
Illustrative example 2: Allowance falls short
Gross is ₹80 lakh and ₹50 lakh is identified for write-off. The associated allowance is ₹42 lakh, with no remaining allowance in this simplified example. Recognise ₹8 lakh more impairment once, then clear ₹50 lakh from gross and allowance; net closes at ₹30 lakh.
Illustrative example 3: Allowance remains on recognised part
Gross is ₹120 lakh and allowance ₹68 lakh, of which ₹60 lakh relates to the part written off and ₹8 lakh remains supported after reassessment. The balances become ₹60 lakh gross, ₹8 lakh allowance and ₹52 lakh net.
Illustrative example 4: Delayed recovery affects remaining ECL
After an identified write-off of ₹30 lakh from ₹70 lakh gross, ₹40 lakh remains. If a separate compliant cash-flow analysis supports ₹35 lakh of present-value recovery on that retained balance, the retained allowance is ₹5 lakh and net carrying amount ₹35 lakh.
Illustrative example 5: Enforcement is a separate population
Contractual outstanding on exposures fully written off this year is ₹22 lakh across two balances; only the ₹15 lakh balance remains subject to enforcement. On those facts the paragraph 35L amount is ₹15 lakh, and ₹7 lakh falls outside that population.
Illustrative example 6: Close the movement schedule
Opening gross of ₹90 lakh and allowance of ₹25 lakh are followed by ₹10 lakh principal receipts, a ₹5 lakh allowance increase and a ₹20 lakh write-off against allowance. Closing gross is ₹60 lakh, closing allowance ₹10 lakh and net ₹50 lakh.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm the instrument and measurement basis | Contract, accounting category and gross subledger. |
| 2 | Inventory possible cash sources | Debtor, guarantor, collateral and enforcement evidence. |
| 3 | Assess recoverability by portion | Identify cash flows with no reasonable recovery expectation. |
| 4 | Separate timing from non-recovery | Support recovery timing and ECL discounting separately. |
| 5 | Update the loss allowance | Calculate impairment before posting and tag the affected amount. |
| 6 | Post the gross reduction | Match the approved write-off to the correct receivable. |
| 7 | Reconcile the retained balance | Gross, retained allowance and net amount tie to the ledger. |
| 8 | Maintain legal tracking | Record contractual outstanding and enforcement status. |
| 9 | Prepare disclosure populations | Policy, allowance roll-forward and current-year enforcement amounts. |
| 10 | Separate tax and prudential analysis | Retain distinct conclusions and approvals by regime. |
Sixteen practitioner FAQs
1. Is write-off equivalent to raising the loss allowance to 100%?
No. It removes gross carrying amount for the portion that meets paragraph 5.4.4.
2. Can a company write off only part of one receivable?
Yes, if the recovery test is satisfied for that part.
3. Is collateral face value sufficient evidence of recoverable cash?
No. Check enforceability, ranking, value, costs and timing.
4. Does the entire loan have to be removed if one portion is unrecoverable?
No. Continue recognising the remainder unless another derecognition requirement applies, and reassess its allowance.
5. Does the board's approval date determine accounting by itself?
No. Establish when the reporting-date recovery evidence supports the accounting conclusion.
6. Can the same expected loss be expensed on allowance recognition and again on write-off?
No. Trace use of the allowance and recognise only any incremental shortfall once.
7. Can enforcement continue afterward?
Yes, where legal rights survive; maintain the separate enforcement record.
8. Does paragraph 35L cover every old written-off account still in collection?
It addresses assets written off during the reporting period that remain subject to enforcement.
9. Can I use the net carrying amount for paragraph 35L?
No. The specified measure is contractual amount outstanding for the qualifying population.
10. How should partial write-offs be tracked operationally?
Record the exact portion removed and separately identify the remaining recognised balance and contractual claim.
11. Can a past-due threshold alone trigger the accounting entry?
No. Use documented recovery evidence and the company's consistently applied policy.
12. Is the remainder assumed to have nil ECL?
No. Reassess remaining expected shortfalls, including the timing of recovery.
13. What if the amount in the legal register is higher than the ledger amount?
Reconcile contractual claims, collections, interest and accounting carrying amounts before disclosure.
14. Is a contractual concession necessarily a write-off under paragraph 5.4.4?
No. Analyse the legal change and the relevant modification or derecognition requirements.
15. Does the entry itself prove a tax deduction?
No. Apply the tax law and supporting evidence independently.
16. What if another cash source looks possible but lacks evidence?
Document its nature, likelihood and support; distinguish reasonable recovery expectations from speculation.
Official sources
MCA Ind AS 109: paragraphs 5.4.4, B5.4.9 and section 5.5 MCA Ind AS 107: paragraphs 35F(e), 35H and 35L