Adcock Ingram Integrated Report 2018

ANNUAL FINANCIAL STATEMENTS 142 ADCOCK INGRAM  Integrated Report 2018 The Group has reviewed its financial assets and financial liabilities and is expecting the following impact from the adoption of the new standard on 1 July 2018: Classification The majority of financial assets held by the Group include: Trade and other receivables – Currently classified as loans and receivables and are measured at amortised cost. Trade and other receivables continue to qualify for measurement at amortised cost under IFRS 9 because they are held to collect contractual cash flows comprising principal and interest and held within the same business model, therefore there is no change to the accounting for these assets. Long-term receivable – Black Managers Share Trust (BMT) – This is currently classified as loans and receivables and is measured at amortised cost. The BMT is a non-recourse loan and therefore does not meet the “solely payments of principle and interest”(SPPI) test. Upon the date of transition to IFRS 9, the loan receivable will be measured at fair value through profit or loss. The difference between the IAS 39 carrying amount at the date of transition and the fair value at the same date will be recognised directly into retained earnings, utilising the modified retrospective approach. Based on the assessments undertaken to date, the Group does not expect a significant impact upon the application of the new standard. Hedge accounting The new hedge accounting rules will align the accounting for hedging instruments more closely with the Group’s risk management practices. As a general rule, more hedge relationships might be eligible for hedge accounting, as the standard introduces a more principles-based approach. In terms of the transition requirements of IFRS 9, the Group may choose as its accounting policy to continue to apply the hedge accounting principles of IAS 39. The Group has elected to apply such exemption. Impairment or provisions IFRS 9 requires the Group to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Group will apply the simplified approach and record lifetime expected losses on all trade receivables. The Group is currently in the process of assessing the impact of IFRS 9 using the provision matrix approach. Impairment losses are expected to be recognised earlier and will often result in a higher charge than is currently provided for due to the incorporation of forward looking information and a default rate applied to all debtors. Based on the assessments undertaken to date, the Group expects a decrease in the net trade receivables of approximately 0.4%, to be recognised through as an adjustment to opening retained earnings. Disclosure The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group’s disclosures about its financial instruments particularly in the year of adoption of the new standard. IFRS 15: REVENUE FROM CONTRACTS WITH CUSTOMERS IFRS 15 establishes a five-step model for entities to use in accounting for revenue arising from contracts with customers. The new standard is based on the principle that revenue is recognised at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The new standard will supersede all current revenue recognition requirements under IFRS and will be effective for the Group from 1 July 2018. Impact Management has extensively reviewed all revenue streams within the Group. Due to the nature of the business, the Group does not anticipate there to be material open contracts on transition and the timing of recognition is not expected to materially impact the Revenue reported under IFRS 15. Management has assessed the key areas of impact on the Group’s financial statements and has identified that the following will be affected: • additional disclosure related to the placement of machines by the critical care division; • additional liabilities for non-performance on customer contracts to be recognised separately on the statement of financial position; and • reclassification of some of the multinational third-party fees from expenses to revenue. Annexure I – Accounting policies continued