Annual Report 2016
123
Financial Section
3 Principal Accounting Policies
(continued)
(i) Derivative financial instruments
A derivative is initially recognised at fair value on the date a derivative contract is entered into and is subsequently
remeasured at its fair value at the end of each reporting period. The change in the fair value is recognised in the
consolidated income statement.
(j) Impairment of financial assets
(i)
Assets carried at amortised cost
The Group assesses at the end of each reporting period whether there is objective evidence that a financial
asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and
impairment losses are incurred only if there is objective evidence of impairment as a result of one or more
events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has
an impact on the estimated future cash flows of the financial asset or group of financial assets that can be
reliably estimated.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:
•
Significant financial difficulty 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 financial difficulty, granting to the
borrower a concession that the lender would not otherwise consider;
•
It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
•
The disappearance of an active market for that financial asset because of financial difficulties; or
•
Observable data indicating that there is a measurable decrease in the estimated future cash flows from a
portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet
be identified with the individual financial assets in the portfolio, including:
(1)
adverse changes in the payment status of borrowers in the portfolio;
(2)
national or local economic conditions that correlate with defaults on the assets in the portfolio.
The Group first assesses whether objective evidence of impairment exists.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at
the financial 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 the consolidated income statement. If a loan or held-to-maturity investment
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 the consolidated
income statement.
(ii) Assets classified as available-for-sale
The Group assesses at the end of each reporting period whether there is objective evidence that a financial
asset or a group of financial assets is impaired. For debt securities, the Group uses the criteria refer to (i)
above. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the
fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists
for available-for-sale financial assets, the cumulative loss — measured as the difference between the
acquisition cost and the current fair value, less any impairment loss on that financial asset previously
recognised in the consolidated income statement — is removed from equity and recognised in the consolidated
income statement. Impairment losses recognised in the consolidated income statement on equity instruments
are not reversed through the consolidated income statement. If, in a subsequent period, the fair value of a debt
instrument classified as available-for-sale increases and the increase can be objectively related to an event
occurring after the impairment loss was recognised in consolidated income statement, the impairment loss is
reversed through the consolidated income statement.
