Page 67 - Inegrated Annual Report 2020-Eng

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | 31 DECEMBER 2020

• Nature of financial instruments (i.e. the Group’s trade and other receivables, finance lease receivables and
amounts due from customers are each assessed as a separate group.

• Past-due status;

• Nature, size and industry of debtors; and

• External credit ratings where available.

The grouping is regularly reviewed by management to ensure the constituents of each group continue to share
similar credit risk characteristics.
The Group recognises an impairment gain or loss in the consolidated statement of profit or loss for all financial
instruments with a corresponding adjustment to their carrying amount through a loss allowance account.

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset
expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset
to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership
and continues to control the transferred asset, the Group recognises its retained interest in the asset and an
associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of
ownership of a transferred financial asset, the Group continues to recognise the financial asset.

Financial liabilities

Trade and other payables are classified as ‘financial liabilities’ and are initially measured at fair value, net of
transaction costs, and are subsequently measured at amortised cost using the effective interest method, with
interest expense recognised on an effective yield basis, except for short term liabilities when the recognition of
interest is immaterial.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated
future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged,
cancelled or they expire.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement
of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an
intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

Financial guarantee contracts

Financial guarantee contracts issued by the Group are those contracts that require a payment to be made
to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due
in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a
liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee.
Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the
present obligation at the reporting date and the amount recognised less cumulative amortisation.

2020 Integrated Annual Report 67