Page 19 - AM210630

Diaranson, 30 Juni 2021 AWEMainta 19

Notes to the Abbreviated Financial Statements (continued)

the Company in accordance with the contract and the cash flows Impairment losses of continuing operations are recognized in the that is significant to the fair value measurement as a whole) at the
that the Company expects to receive, discounted at the original statement of income in those expense categories consistent with end of each reporting period.
effective interest rate. the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each External valuers are involved for valuation of certain assets such as
The mechanics of the expected credit losses method are sum- reporting date as to whether there is any indication that previously investment properties and freehold and leasehold properties.
marised below: recognized impairment losses may no longer exist or may have Involvement of external valuers is decided annually and selection
decreased. If such an indication exists, the Company makes an criteria include market knowledge, reputation, independence and
• A financial instrument that is not credit-impaired on initial estimate of the recoverable amount. A previous impairment loss is whether professional standards are maintained.
recognition, a 12-month ECL allowance is calculated. The reversed only if there has been a change in the estimates used to
Company calculates the 12-month ECL allowance based on determine the asset’s recoverable amount since the last impair- Offsetting financial instruments
the expectation of a default occurring in the twelve months ment loss was recognized. If that is the case, the carrying amount Financial assets and financial liabilities are offset and the net
following the reporting date. The expected 12-month default of the asset is increased to its recoverable amount. That increased amount reported in the statement of financial position only when
probability is applied to a forecast exposure at default and amount cannot exceed the carrying amount that would have there is a legally enforceable right to offset the recognized
multiplied by the expected loss given default, and discounted been determined, net of depreciation, had no impairment loss amounts and there is an intention to settle on a net basis or realize
by the original effective interest rate. been recognized for the asset in prior years. Such reversal is rec- the assets and settle the liabilities simultaneously.
• When a financial instrument has shown a significant increase ognized in the statement of income unless the asset is carried at
in credit risk since initial recognition, the Company records an the revalued amount, in which case the reversal is treated as a Cash and cash equivalents
allowance for life-time ECL. The mechanics are similar to revaluation increase. Cash and cash equivalents include cash in hand, deposits held at
12-month ECL calculation on a financial instrument that is not call with banks and other short-term highly liquid investments
credit-impaired on initial recognition, but default probability and Fair value measurement with original maturities of three months or less, and bank overdrafts.
loss given default are estimated over the life of the instrument. The Company measures financial instruments and non-financial Bank overdrafts, when they arise, are shown within borrowings in
• A financial instrument that is credit-impaired, but is not a pur- assets at fair value at each reporting date. current financial liabilities on the statement of financial position.
chased or originated credit-impaired financial instrument, the Cash and cash equivalents are carried at amortised cost on the
Company records an allowance for lifetime ECL calculated Fair value is the price that would be received to sell an asset or statement of financial position.
similar to lifetime ECL on a financial instrument that has shown paid to transfer a liability in an orderly transaction between market
a significant increase in credit risk since initial recognition. participants at the measurement date. The fair value measure- Share capital
• Purchased or credit-impaired financial assets are assets that ment is based on the presumption that the transaction to sell the Shares are classified as equity when there is no obligation to transfer
are credit-impaired on initial recognition. ECL on these assets asset or transfer the liability takes place either: cash or other assets.
are always measured on a lifetime basis, discounted by a 
credit adjusted effective interest rate. The Company has no • In the principal market for the asset or liability, or Reserves
purchased or credit-impaired financial instruments. • In the absence of a principal market, in the most advantageous Reserves are maintained in relation to the recognition of changes
market for the asset or liability. in the fair value of certain investments in debt securities and
Where lifetime ECL is measured on a collective basis to cater for foreign currency exchange differences. The statutory reserve is
cases where evidence of significant increases in credit risk at the The principal or the most advantageous market must be accessible maintained in accordance with provisions of the by-laws of the
individual instrument level may not yet be available, the financial by the Company. Company where the Company is required to appropriate an
instruments are grouped on the basis of shared risk characteristics amount towards statutory reserve in accordance with require-
that include: instrument type; credit risk ratings; nature, size and The fair value of an asset or a liability is measured using the ments of the Central Bank.
industry of debtors; collateral type; and geographic location of the assumptions that market participants would use when pricing the
debtor. asset or liability, assuming that market participants act in their Insurance and investment contracts
economic best interest. (a) Classification
If the Company has measured the loss allowance for a financial The Company issues contracts that transfer insurance risk or financial
instrument at an amount equal to lifetime ECL in the previous A fair value measurement of a non-financial asset takes into ac- risk or both. Insurance contracts are those contracts that transfer
reporting period, but determines at the current reporting date that count a market participant’s ability to generate economic benefits significant insurance risk. Such contracts may also transfer financial
the conditions for lifetime ECL are no longer met, the Company by using the asset in either its highest and best use, or by selling risk. As a general guideline, the Company defines as significant
measures the loss allowance at an amount equal to 12-month it to another market participant that would use the asset in its insurance risk the possibility of having to pay benefits on the
ECL at the current reporting date. highest and best use. occurrence of an insured event that are at least 10% more than
the benefits payable if the insured event did not occur.
Impairment of non-financial assets When one is available, the Company measures the fair value of an
The Company assesses at each reporting date whether there is an instrument using the quoted price in an active market. If there is Investment contracts are those contracts that transfer financial risk
indication that an asset may be impaired. If any such indication no quoted price in an active market, the Company establishes fair with no significant insurance risk.
exists, or when annual impairment testing for an asset is required, value by using valuation techniques. These include the use of
the Company estimates the asset’s recoverable amount. An asset’s recent arm’s length transactions, reference to other instruments A number of insurance contracts contain a discretionary participation
recoverable amount is the higher of an asset’s or cash-generating that are substantially the same and discounted cash flow analysis feature (“DPF”). This feature entitles the holder to receive, as a
unit’s (CGU) fair value less costs to sell and its value in use. The making maximum use of market inputs and relying as little as supplement to guaranteed benefits, additional benefits or bonuses:
recoverable amount is determined on an individual asset basis, possible on entity-specific inputs. a) that are likely to be a significant portion of the total contrac-
unless the asset does not generate cash inflows that are largely All assets and liabilities for which fair value is measured or dis- tual benefits;
independent of those from other assets or group of assets. When closed in the financial statements are categorized within the fair b) whose amount or timing is contractually at the discretion of
the carrying amount of an asset or CGU exceeds its recoverable value hierarchy, described as follows, based on the lowest level the Company;
amount, the asset or CGU is considered impaired and written input that is significant to the fair value measurement as a whole: c) and that are contractually based on:
down to its recoverable amount. (i) the performance of a specified pool of contracts or a
Level 1 — Quoted (unadjusted) market prices in active markets specified type of contract;
In assessing value in use, the estimated future cash flows are dis- for identical assets or liabilities. (ii) realized and/or unrealized investment returns on a
counted to their present value using a pre-tax discount rate that specified pool of assets held by the Company; or
reflects current market assessments of the time value of money Level 2 — Valuation techniques for which the lowest level input (iii) the profit or loss of the Company, fund or other entity
and the risks specific to the asset. In determining fair value less that is significant to the fair value measurement is directly or indi- that issues the contract.
costs of disposal, recent market transactions are taken into account. rectly observable.
If no such transactions can be identified, an appropriate valuation The terms and conditions of these contracts set out the bases for
model is used. These calculations are corroborated by valuation Level 3 — Valuation techniques for which the lowest level input the determination of the amounts on which discretionary benefits
that is significant to the fair value measurement is unobservable. are based and within which the Company may exercise its discre-
multiples, quoted share prices for publicly traded companies or Assets and liabilities, with the exception of freehold and invest- tion as to the quantum and timing of their payments to contract
other available fair value indicators. ment properties, included in level 3 are held at cost, being the fair holders, which will be subject to the advice of the Company’s
value of the consideration paid on acquisition and are regularly actuary or a locally appointed actuary.
The Company bases its impairment calculations on detailed bud- assessed for impairment. Freehold and investment properties in-
gets and forecast calculations, which are prepared separately for cluded in level 3 are held at fair value which is the estimated re- (b) Recognition and measurement
each of the Company’s CGUs to which the individual assets are placement value. Insurance contracts are classified into four main categories,
allocated. These budgets and forecast calculations generally cover depending on the duration of risk and whether or not the terms
a period of three years. For longer periods, a long-term growth For assets and liabilities that are recognized in the financial and conditions are fixed.
rate is applied to project future cash flows after the third year. statements on a recurring basis, the Company determines
whether transfers have occurred between levels in the hierarchy
by re-assessing categorization (based on the lowest level input