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Integrated Report 2016
ANNUAL FINANCIAL STATEMENTS
(continued)
SIX
THREE
ONE
FOUR
TWO
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount
of the asset and the maximum amount of consideration that the Group could be required to repay.
IMPAIRMENT OF FINANCIAL ASSETS
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.
A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of
one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and the loss event has an impact on the
estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may
include indications that the debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or
principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that
there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Loans and receivables
The Group assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or
collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists
for an individually assessed financial asset, whether significant or not, it includes the assets in a group of financial assets with similar credit risk
characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment
loss is, or continues to be, recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has been incurred, 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 expected credit losses that have not yet
been incurred).
The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable
interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.
The carrying amount of the assets is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss.
Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future
cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the statement of
comprehensive income. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery
and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment
loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is
increased or reduced by adjusting the allowance account. If a future write off is later recovered, the recovery is credited to finance costs in the
statement of comprehensive income.
Available-for-sale financial assets
For available-for-sale financial assets, the Group assesses at each reporting date whether there is objective evidence that an investment or a
group of investments is impaired.
In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair
value of the investment below its cost. “Significant” is to be evaluated against the original costs of the investment and “prolonged” against the
period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss – measured as the
difference between the acquisition cost and the current fair value, less an impairment loss on that investment previously recognised in the
statement of comprehensive income – is reclassified from other comprehensive income to profit or loss. Increases in fair value after impairment
are recognised directly in other comprehensive income. Impairment losses on available-for-sale equity instruments are not reversed through
profit or loss.
FINANCIAL LIABILITIES
INITIAL RECOGNITION AND MEASUREMENT
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as
derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial
liabilities at initial recognition.