1.15 Provisions
1. Aprovision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that is
reasonably estimable, and it is probable that an outflow of economic benefits will be required to settle the obligation.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability.
2. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the
liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance
cost.
1.16 Financial instruments
a. Recognition and Initial recognition
The Company recognizes financial assets and financial liabilities when it becomes a party to the contractual provisions
of the instrument. All financial assets and liabilities are recognized at fair value on initial recognition, except for trade
receivables which are initially measured at transaction price. Transaction costs that are directly attributable to the
acquisition or issues of financial assets and financial liabilities that are not at fair value through profit or loss, are added to
the fair value on initial recognition.
Afinancial asset or financial liability is initially measured at fair value plus, for an item not at fair value through profit and
loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue.
b. Classification and Subsequent measurement
Financial assets
On initial recognition, a financial asset is classified as measured at
-amortized cost;
-FVTPL
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the company
changes its business model for managing financial assets.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at
FVTPL:
- the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
All financial assets not classified as measured at amortized cost as described above are measured at FVTPL. On initial
recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be
measured at amortized cost at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would
otherwise arise.
Financial assets: Business model assessment
The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio
level because this best reflects the way the business is managed and information is provided to management. The
information considered includes:
- the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether
management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile,
matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or
realizing cash flows through the sale of the assets;
- how the performance of the portfolio is evaluated and reported to the Company’s management;
- the risks that affect the performance of the business model (and the financial assets held within that business model)
and how those risks are managed;
- how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets
managed or the contractual cash flows collected; and
- the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and
expectations about future sales activity.
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales
for this purpose, consistent with the Company’s continuing recognition of the assets.
Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are
measured at FVTPL.
Financial assets: Assessment* whether contractual cash flows are solely payments of principal and interest
*For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition.
‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal
amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and
administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Company considers
the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term
that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this
assessment, the Company considers:
- contingent events that would change the amount or timing of cash flows;
- terms that may adjust the contractual coupon rate, including variable interest rate features;
- prepayment and extension features; and
- terms that limit the Company’s claim to cash flows from specified assets (e.g. non- recourse features).
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount
substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may
include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset
acquired at a significant discount or premium to its contractual paramount, a feature that permits or requires prepayment
at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest
(which may also include reasonable additional compensation for early termination) is treated as consistent with this
criterion if the fair value of the prepayment feature is insignificant at initial recognition.
Financial assets: Subsequent measurement and gains and losses
Financial assets at FVTPL: These assets are subsequently measured at fair value. Net gains and losses, including any
interest or dividend income, are recognized in profit or loss.
Financial assets at amortized cost: These assets are subsequently measured at amortized cost using the effective
interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and
losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Financial liabilities:
Classification, Subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortized cost or FVTPL. Afinancial liability is classified as at FVTPL if
it is classified as held-for-trading, or it is a derivative or it is designated as such on initial recognition. Financial liabilities
at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or
loss. Otherfinancial liabilities are subsequently measured at amortized cost using the effective interest method. Interest
expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is
also recognized in profit or loss.
c. Derecognition
Financial assets
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset
expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks
and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains
substantially all of the risks and rewards of ownership and does not retain control of the financial asset.
If the Company enters into transactions whereby it transfers assets recognized on its balance sheet, but retains either all
or substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognized.
Financial liabilities
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire.
The Company also derecognizes a financial liability when its terms are modified and the cash flows under the modified
terms are substantially different. In this case, a new financial liability based on the modified terms is recognized at fair
value. The difference between the carrying amount of the financial liability extinguished and the new financial liability
with modified terms is recognized in profit or lose.
d. Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when and only
when, the Company currently has a legally enforceable right to setoff the amounts and it intends either to settle them on
a net basis or to realize the asset and settle the liability simultaneously.
e. Impairment
The Company recognizes loss allowances for expected credit losses on financial assets measured at amortized cost;
At each reporting date, the Company assesses whether financial assets carried at amortized cost and debt securities at
fair value through other comprehensive income (FVOCI) are credit impaired. Afinancial asset is ‘credit- impaired’when
one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have
occurred.
Evidence that a financial asset is credit- impaired includes the following observable data:
- Significantfinancial difficulty of the borrower or issuer;
- The restructuring of a loan or advance by the Company on terms that the Company would not consider otherwise;
- It is probable that the borrower will enter bankruptcy or other financial reorganization; or
- The disappearance of an active market for a security because of financial difficulties.
The Company measures loss allowances at an amount equal to lifetime expected credit losses, except for the following,
which are measured as 12 month expected credit losses:
- Debt securities that are determined to have low credit risk at the reporting date; and
- Other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the
financial instrument) has not increased significantly since initial recognition.
Loss allowances for trade receivables are always measured at an amount equal to lifetime expected credit losses.
Lifetime expected credit losses are the expected credit losses that result from all possible default events over the expected
life of a financial instrument.
12-month expected credit losses are the portion of expected credit losses that result from default events that are possible
within 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).
In all cases, the maximum period considered when estimating expected credit losses is the maximum contractual period over
which the Company is exposed to credit risk.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when
estimating expected credit losses, the Company considers reasonable and supportable information that is relevant and
available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the
Company’s historical experience and informed credit assessment and including forward- looking information.
Measurement of expected credit losses
Expected credit losses are a probability weighted estimate of credit losses. Credit losses are measured as the present value
of all cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with the contract and the
cash flows that the Company expects to receive).
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