Integrated Reports Senwes Financial Review 2018 - Page 69

FINANCIAL REVIEW 2.13 Operating leases Leases in respect of property, plant and equipment, where substantially all the risks and rewards attached to property rights to an asset are retained by the lessor, are classified as operating leases. Payments made under operating leases are recognised in profit or loss on a straight- line basis over the term of the lease. Future escalations in terms of the lease agreement are cal- culated and the average lease expenditure is recognised over the lease period in equal amounts, only if a fixed escalation rate has been agreed to contractually. recognised impairment loss is increased or decreased by adjusting the allowance account with the counter entry being recognised in profit or loss. Loans receivable An assessment is made at each reporting date as to whether there is objective evidence that a financial asset or group of financial assets is impaired. Objective evidence for im- pairment includes observable data that comes to the attention of the group in relation to the asset about the following loss events: 2.14 Impairment of assets All categories of assets are assessed for impairment at each reporting date. significant financial difficulty of the issuer; or a breach of contract, such as a default in payment; or 2.14.1 FINANCIAL ASSETS Financial assets held at amortised cost probability that the borrower will enter bankruptcy or other financial reorganisation; or Trade and other receivables Trade receivables are stated at an expected realisable value; which is the original invoiced amount less any provisions created by way of impairments. An impairment provision will be calculated if there is proof that the group will not be able to collect all amounts from the debtor, as set out in the original terms of payment. The objective of the impairment requirements is to recognise expected credit losses in respect of financial assets for which there have been significant increases in credit risk since initial recognition – whether assessed on an individual or collective basis – considering all rea­son-­ ­able and supportive information, including that which is forward-looking. Impairment = Total book x Probability of Default (PD) x Loss Given Default (LGD). Impairment of a financial asset is dependent on whether the credit risk of the financial asset has increased significantly since initial recognition. Indicators of impairment of a finan-­ cial asset include: Non-compliance with arrangements or agreements. Insolvencies or near-insolvencies. Apparent financial problems or poor key financial ratios. Other indicators such as drought or low commodity prices which will affect customer ability to settle outstanding debt. Bad debts are written off in the year in which they occur or are identified. The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in profit or loss. If a write-off is later recovered, the previously disappearance of an active market for that financial asset because of financial difficul- ties; or indications that there is a measurable decrease in the estimated future cash flows from the group of financial assets since the initial recognition of these assets. The impairment is determined as the difference between the carrying amount and the recoverable amount. This is done on the basis of discounting the future cash flows to present value using the original effective interest rate. This rate is the rate of the financial debtor or group of debtors contracted. This rate is the rate of the loans receivable, or group of loans receivable, contracted. Available-for-sale financial investments For available-for-sale financial investments, the group assesses at each reporting date whether there is objective evidence that an investment or group of investments are impaired. If such an indication exists, the accounting treatment is the same as for finan- cial assets set out above, with movements recognised through other comprehensive income. 2.14.2 NON-FINANCIAL ASSETS On each reporting date the group considers whether there are any indications of impair- ment of an asset. If such an indication exists, the group prepares an estimate of the recoverable amount of the asset. The recoverable amount of an asset or the cash gene-­ rating unit, within which it and other assets operate, is the greater of the fair value less the cost of selling and the value in use of the asset. Where the carrying amount of an asset exceeds the recoverable amount, the impairment is determined and the carrying amount written off to the recoverable amount. Where the value in use is determined, the expected future cash flow is discounted at their present value by using a pre-tax FINANCIAL REVIEW 69