Page 127 - ar2010

125

notes to the

financial statements

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (cont’d)

4 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (i) Financial assets (continued)

(iv) Subsequent measurement – Impairment of fnancial assets (continued) Assets carried at amortised cost (continued)

The criteria that the Group uses to determine that there is objective evidence of an impairment loss include: • Signifcant fnancial diffculty of the issuer or obligor;

• A breach of contract, such as a default or delinquency in interest or principal payments;

• The Group, for economic or legal reasons relating to the borrower’s fnancial diffculty, granting to the borrower a

concession that the lender would not otherwise consider;

• It becomes probable that the borrower will enter bankruptcy or other fnancial reorganisation; • Disappearance of an active market for that fnancial asset because of fnancial diffculties; or

• Observable data indicating that there is a measurable decrease in the estimated future cash fows from a portfolio of

fnancial assets since the initial recognition of those assets, although the decrease cannot yet be identifed with the individual fnancial assets in the portfolio, including:

(i) adverse changes in the payment status of borrowers in the portfolio; and

(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of

estimated future cash fows (excluding future credit losses that have not been incurred) discounted at the fnancial asset’s original effective interest rate. The asset’s carrying amount of the asset is reduced and the amount of the loss is recognised in proft or loss. If ‘loans and receivables’ has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an

event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in proft or loss.

When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all

the necessary procedures have been completed and the amount of the loss has been determined.

Assets classifed as available-for-sale

The Group assesses at the end of the reporting period whether there is objective evidence that a fnancial asset or a group

of fnancial assets is impaired.

In the case of equity securities classifed as available-for-sale, in addition to the criteria for ‘assets carried at amortised

cost’ above, a signifcant or prolonged decline in the fair value of the security below its cost is also considered as an indicator that the assets are impaired. If any such evidence exists for available-for-sale fnancial assets, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in proft or loss. The amount of cumulative loss that is reclassifed to proft or loss is the difference between the acquisition cost and the current fair value, less any impairment loss on that fnancial asset previously recognised in proft or loss. Impairment losses recognised in proft or loss on equity instruments classifed as available-for-sale are not reversed through proft or loss.

Change in accounting policy

The Group has changed its accounting policy for impairment of investments upon adoption of FRS 139 “Financial

instruments: Recognition and Measurement” on 1 January 2010.

Previously, for investments in non-current investments, allowance for diminution in value was made where, in the opinion

of the Directors, there was a decline other than temporary in the value of such investments. Where there had been a decline other than temporary in the value of an investment, such a decline was recognised in proft or loss in the period in which the decline was identifed. Marketable securities (within current assets) were carried at the lower of cost and market value. Changes in the carrying amount of marketable securities were credited/charged to proft or loss.

The Group has applied the new policy according to the transitional provisions by re-measuring all fnancial assets,

as appropriate, and recording any adjustments to the previous carrying amounts to opening retained earnings or, if appropriate, another category of equity, of the current fnancial year. Comparative for fnancial instruments have not been adjusted and therefore the corresponding balances are not comparable. Refer to Note 44 for the impact of this change in accounting policy.