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Notes to the
financial statements
For the financial year ended 31 December 2018
87
A N N U A L R E P O R T
2 0 1 8
2.
Summary of significant accounting policies (cont’d)
2.13
Financial instruments (cont’d)
(b)
Financial liabilities
Initial recognition and measurement
Financial liabilities are recognised when, and only when, the Group becomes a party to the
contractual provisions of the financial instrument. The Group determines the classification
of its financial liabilities at initial recognition.
All financial liabilities are recognised initially at fair value plus in the case of financial
liabilities not at fair value through profit or loss, directly attributable transaction costs.
Subsequent measurement
After initial recognition, financial liabilities that are not carried at fair value through profit
or loss are subsequently measured at amortised cost using the effective interest method.
Gains and losses are recognised in profit or loss when the liabilities are derecognised, and
through the amortisation process.
De-recognition
A financial liability is de-recognised when the obligation under the liability is discharged or
cancelled or expires. On derecognition, the difference between the carrying amounts and the
consideration paid is recognised in profit or loss.
2.14
Impairment of financial assets
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not
held at fair value through profit or loss and financial guarantee contracts. ECLs are based on the
difference between the contractual cash flows due in accordance with the contract and all the cash
flows that the Group expects to receive, discounted at an approximation of the original effective
interest rate. The expected cash flows will include cash flows from the sale of collateral held or
other credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs are provided for credit losses that result from
default events that are possible within the next 12-months (a 12-month ECL). For those credit
exposures for which there has been a significant increase in credit risk since initial recognition, a
loss allowance is recognised for credit losses expected over the remaining life of the exposure,
irrespective of timing of the default (a lifetime ECL).