Sustainability and Governance Report
Notes to the FINANCIAL STATEMENTS
Not
2. Summary of significant accounting policies (cont'd)
2.11 Financial instruments (cont'd)
(b) Financial liabilities
Initial recognition and measurement
Financial liabilities are recognised when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. The Group determines the
classification of its financial liabilities at initial recognition.
All financial liabilities are recognised initially at fair value plus in the case of financial liabilities not at fair value through profit or loss, directly attributable transaction costs.
Subsequent measurement
After initial recognition, financial liabilities that are not carried at fair value through profit or loss are subsequently measured at amortised cost using the effective interest
method. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process.
De-recognition
A financial liability is de-recognised when the obligation under the liability is discharged or cancelled or expires. On derecognition, the difference between the carrying
amounts and the consideration paid is recognised in profit or loss.
2.12 Impairment of financial assets
The Group recognises an allowance for expected credit losses ("ECLS") for all debt instruments not held at fair value through profit or loss and financial guarantee contracts.
ECLS are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive,
discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual terms.
ECLS are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for
credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant
increase in credit risk since initial recognition, a loss allowance is recognised for credit losses expected over the remaining life of the exposure, irrespective of timing of the
default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the group does not track changes in credit risk, but
instead recognises a loss allowance based on lifetime ECLS at each reporting date. The Group has established a provision matrix that is based on its historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset
to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any
credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
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