PAA for onerous and non onerous groups
Looking at the similarities and differences of PAA and GMA on page 36 of source, under the Initial measurement section, it says "If onerous, present value of cash flows plus risk adjustment" . Questions:
I thought that if for PAA, regardless of onerous or not, LRC excl LC is calculated the same way. So why does it say "if onerous" here?
i thought for PAA method, both cash flow projections and risk adjustment is not required - that is why PAA is simpler than GMA. So why if onerous, we need to calculate cash flow pojections + risk adjustment ie FCFs?
Also, in the wiki, under " describe any 2 differences between GMA and PAA for LRC that pertain only to non-onerous contracts", for CSM, I thought that is not necessary to calculate CSM for PAA regardless of onerous or not. I thought this is another reason why PAA is simpler than GMA - do not need to calculate CSM
Comments
Well PAA LRC = LRC excl LC + LC. If it is non-onerous, then PAA LRC = LRC Excl LC. Otherwise, you would need to calculate the LC and to calculate the loss component, you would need your FCFs and RA.
Yes whether onerous or not, there is no need to calculate the CSM for a contract measured under PAA. This doesn't invalidate the fact that for non-onerous contracts, you would need a CSM for the GMA but not for the PAA measurement
Just to clarify, when you said "you would need your FCFs + RA" you mean future cash flows + risk adj which means fulfilment cash flows?
Yeap that's what I meant. Future cash flows and fulfilment cash flows have the same acronym which makes things annoying