Investor Presentaiton
ANNUAL REPORT 2020
58
Notes to the Financial Statements
For the year ended 31 December 2020
The simplified approach requires expected lifetime losses to be recognised from initial recognition of the receivables.
This involves determining the expected loss rates using a provision matrix that is based on the Company's historical
default rates observed over the expected life of the receivable and adjusted forward-looking estimates. This is then
applied to the gross carrying amount of the receivable to arrive at the loss allowance for the period.
The three-stage approach assesses impairment based on changes in credit risk since initial recognition using the
past due criterion and other qualitative indicators such as increase in political concerns or other macroeconomic
factors and the risk of legal action, sanction or other regulatory penalties that may impair future financial
performance. Financial assets classified as stage 1 have their ECL measured as 12 month ECL which is a proportion
of their lifetime ECL that results from possible default events that can occur within one year, while assets in stage
2 or 3 have their ECL measured on a lifetime basis.
Under the three-stage approach, the ECL is determined by projecting the probability of default (PD), loss given
default (LGD) and exposure at default (EAD) for each individual exposure. The PD is based on default rates
determined by external rating agencies for the counterparties. The LGD is determined based on management's
estimate of expected cash recoveries after considering the historical pattern of the receivable and assessing the
portion of the outstanding receivable that is deemed to be irrecoverable at the reporting period. External data was
also sourced from Moody's corporate recovery rates to determine the LGD for some financial assets. The EAD is the
total amount of outstanding receivable at the reporting period. These three components are multiplied together
and adjusted for forward looking information, such as the unemployment rate in Nigeria, inflation rate, and crude
oil prices to arrive at an ECL which is then discounted back to the reporting date and summed. The discount rate
used in the ECL calculation is the original effective interest rate or an approximation thereof.
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of
the related financial assets and the amount of the loss is recognised in profit or loss and presented on the face of
the statement of profit or loss.
Significant increase in credit risk and default definition
The Company assesses the credit risk of its financial assets based on the information obtained during periodic review
of publicly available information, industry trends and payment records. Based on the analysis of the information
provided, the Company identifies the assets that require close monitoring.
Furthermore, financial assets that have been identified to be more than 30 days past due on contractual payments
are assessed to have experienced significant increase in credit risk. These assets are grouped as part of Stage 2
financial assets where the three-stage approach is applied.
In line with the Company's credit risk management practices, a financial asset is defined to be in default when
contractual payments have not been received at least 90 days after the contractual payment period. Subsequent
to default, the Company carries out active recovery strategies to recover all outstanding payments due on
receivables. Where the Company determines that there are no realistic prospects of recovery, the financial asset
and any related loss allowance is written off either partially or in full.
iii)
Derecognition
Financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset
expire or when it transfers the financial asset and the transfer qualifies for derecognition. Gains or losses on
derecognition of financial assets are recognised as other income/(losses).
Financial liabilities
The Company derecognises a financial liability when it is extinguished i.e. when the obligation specified in the
contract is discharged or cancelled or expires. When an existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an
exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability.
The difference in the respective carrying amounts is recognised immediately in the statement of profit or loss.
iv)
Offsetting of financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount is reported in the statement of financial position.
Offsetting can be applied when there is a legally enforceable right to offset the recognised amounts, and there is
an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
The legally enforceable right is not contingent on future events and is enforceable in the normal course of business,
and in the event of default, insolvency or bankruptcy of the Company or the counterparty.
c)
i.
Property, Plant and Equipment
Recognition and measurement
Cost includes expenditure that is directly attributable to the acquisition of the asset. Items of property, plant and
equipment under construction are disclosed as assets under construction. The cost of construction recognised
includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a
working condition for their intended use, the costs of dismantling and removing the items and restoring the site on
which they are located, and borrowing costs on qualifying assets.
Purchased software that is integral to the functionality of the related equipment is capitalised as part of the
equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of property, plant and equipment and depreciated accordingly.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds
from disposal with the carrying amount of property, plant and equipment, and are recognised net within other
income in profit or loss.
ii.
Subsequent costs
The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the
item if it is probable that the future economic benefits embodied within the part will flow to the Company and its
cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-
day servicing of property, plant and equipment are recognised in profit or loss as incurred.
iii.
Depreciation
Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted
for cost, less its residual value.
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an
item of property, plant and equipment which reflects the expected pattern of consumption of the future economic
benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful
lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term in which
case the assets are depreciated over the useful life.
The estimated useful lives for the current and comparative periods are as follows:
Asset class
Leasehold land
• Buildings
Plant and machinery
- Workshop machinery
- Filling and packaging machinery/lines
- Labelling, box packers and palletizers
- Utilities and other plant and machinery
Motor vehicles
Furniture, fittings and tools
Useful life
25 years
25 years
20 years
10 years
15 years
13 years
4 years
5 years
FrieslandCampina WAMCO Nigeria PLC
FrieslandCampina WAMCO Nigeria PLC
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