Integrated Reports Senwesbel Consolidated Financial Statements 2018 - Page 77

COMMODITY TERM CONTRACTS (FUTURES) The group participates in various over-the-counter (OTC) future buying and selling contracts for the buying and selling of commodities. Although certain contracts are covered by the physical provision or delivery during normal business activities, OTC-contracts are regarded as a financial instrument. In terms of IAS 39 and IFRS 9, it is recorded at fair value, where the group has a long history of net finalisation (either with the other party or to participate in other off-setting contracts). 2.12 CASH AND SHORT-TERM DEPOSITS Included in cash and short-term deposits, which form an integral part of cash management, are cash on hand and bank overdraft balances. Bank overdraft balances are stated as current liabilities. For the purposes of the statement of cash flows, cash and cash equivalents comprise of cash and short-term deposits as defined above, net of outstanding overdrafts. 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 calculated 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. 2.14 IMPAIRMENT OF ASSETS All categories of assets are assessed for impairment at each reporting date. 2.14.1 FINANCIAL ASSETS FINANCIAL ASSETS HELD AT AMORTISED COST TRADE 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 reasonable 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 financial 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 recognised impairment loss is increased or decreased by adjusting the allowance account with the counter entry being recognised in profit or loss. OTHER ACCOUNTS 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 impairment includes observable data that comes to the attention of the group in relation to the asset about the following loss events: • significant financial difficulty of the issuer, or • a breach of contract, such as a default in payment, or • probability that the borrower will enter bankruptcy or other financial reorganisation, or • disappearance of an active market for that financial asset because of financial difficulties, 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. Senwesbel Limited Reg no: 1996/017629/06 SENWESBEL ANNUAL FINANCIAL STATEMENTS 2018 76