AFRICAN DAWN ANNUAL REPORT 2019 Accounting Policies continued Stage 1 Performing: When advances are first recognised, the group recognises an allowance based on 12-month ECLs. Stage 1 advances also include facilities where the credit risk has improved, and the advance has been reclassified from Stage 2. The advances included within Stage 1 are those advances made to group companies with strong capability to repay the loans and that are in a sound financial position with assets exceeding liabilities. Stage 2 Underperforming: When a loan has shown a significant increase in credit risk since origination, the group records an allowance for the life time ECLs. Stage 2 loans also include facilities, where the credit risk has improved, and the loan has been reclassified from Stage 3. Based on the history of the group, these might include advances where the company has not made payments, mainly due to deterioration in the financial health of the company, based on forecast information and the net asset value of the companies. This is considered to increase the credit risk of the company, but advances are still expected to be recovered through a debt management process. Stage 3 Non-performing: Loans considered credit-impaired. The group records an allowance for the life time ECLs. This is where there has been defaults by the company or more advanced debt management processes is required. The advances can move between stages based on their performance, ie an advance in Stage 2 in the current year can move to a Stage 1 loan in the next period if the lender’s risk decreases, for example, the lender recovers and makes regular payments again. The entity considers a financial instrument defaulted and therefore Stage 3 (credit-impaired) for ECL calculations in all cases when the borrower enters advance management process. 50 Write off Loans are written off when management in both companies agree the amount is no longer recoverable due to the company being winded-down The loss on the derecognition of the loan is recognised in profit or loss. Rehabilitated loans Financial liabilities Borrowings and other loans Classification The group recognises a financial liability once it becomes a party to the contractual terms of the financial instrument. Financial liabilities carried at amortised cost are recognised initially at fair value net of directly attributable transaction costs. Subsequently financial liabilities are stated at amortised cost using the effective interest rate method. Recognition and measurement Loans from group companies, borrowings and loans from directors are classified as financial liabilities at amortised cost. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest method. Loans repayable on demand are discounted from the first day the loans can be demanded. Interest expense, calculated on the effective interest method, is included in profit or loss in finance costs. Borrowings expose the company to liquidity risk and interest rate risk. Refer to Note 33 for details of risk exposure and management thereof. Derecognition A financial liability, or part of a financial liability, is derecognised when the obligation under the liability is discharged or cancelled or expires. Trade and other payables Classification Trade and other payables (Note 20), excluding VAT and amounts received in advance, are classified as financial liabilities subsequently measured at amortised cost.
AFDAWN AR FINAL 2019
To see the actual publication please follow the link above