So in this workout, we're looking at bank A who have granted 100 million of auto loans.

We're told that applying the bank's internal thresholds, they've determined that this loan is performing, which means that under IFS, we're gonna classify it as stage one.

We're asked to calculate the expected credit loss provision in this instance.

So the calculation here is that we're gonna need to take the size of the loan, the a hundred million, multiply that by the 12 month probability of default.

That's what we're doing for stage one, our performing loans.

And also multiply that by the 12 month loss given default. That's the expected loss that we would see if default happened in the next 12 months.

And what that gives us is a provision of 0.2 million.

If we then move on to workout two, workout two is asking us two, using the information from that previous workout, look at the accounting transactions that are gonna be required.

And when the loan is granted, it's relatively straightforward, we're gonna see our cash go down by 100.

And we're also gonna see the loan asset on the bank's balance sheet go up by 100 as well.

So that will keep us in balance when the loan is initially granted.

But then we've gotta take account of this 0.2 expected credit loss provision.

And the way that we account for this is that we've reduced the size of the loan asset by the 0.2 to reflect the fact that we expect to make losses of 0.2 in the future.

But we also need to make our balance sheet balance.

And the other side of this, we reflect in the income statement, reducing retained earnings by the same 0.2.

So this will be shown in the income statement as an expense for the provision or the allowance for expected loan or credit losses.