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AFRICAN DAWN ANNUAL REPORT 2020

Accounting Policies continued

A separate impairment percentage is calculated based on the different portfolios as described above. The Group has established a provision that is
based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

The group categorises assets based on their term, there performance as well as the type of receivable as described in credit risk note 28.
Impairment provisions are applied to these categories of trade receivables in order to calculate the lifetime ECL recognised on trade and
other receivables.

The Group considers that there has been a significant increase in credit risk when trade and other receivables when a SICR event occurs. Refer to
note 1.18 for management's assessment of when a SICR event.

- Measurement and recognition of expected credit losses

The provision is based on historic credit loss experience, adjusted for current and forecast direction of economic conditions at the reporting date,
including the time value of money, where appropriate.

The most significant class of financial asset subject to an ECL provision is trade receivables. Trade receivables mostly comprise a large number of
small, homogeneous assets. The group uses an ECL provisioning model based on historical roll rates and applies forward-looking industry available
knowledge to provide a forward economic over-lay onto the historical rates.
The loss allowance is reduced by the collateral in place over all its trade receivables. The collateral mainly consist out of directors loans which have
been given up as security for selected debtors. The value of the collateral is considered before incorporating it within the impairment calculation.
Adjustments to the ECL provision are recognised through use of a loss allowance account. The ECL gain or loss is included in other operating
expenses in profit or loss as a movement in credit loss allowance.
The group stratifies the ECL provision results into similar groups to ensure results are stable and appropriate to predict future cash flows for clients
with similar characteristics. Refer to the classes of trade receivables above for the stratification criteria.
The ECL provision is calculated by multiplying the gross amount of debt (exposure at default) with the loss given default multiplied with the
probability of default. This calculation takes into account the loss of time value of money should debt be collected over a longer period of time
than originally anticipated.

- Default
The Group considers that there has been a significant increase in credit risk for trade and other receivables when contractual payments are
more than 75 days or when a SICR event has occurred and therefore applies a greater impairment percentage to these assets, than those that
are performing. Refer to note 1.18 for details of when a SICR event is identified. Debtors are transferred from Collection and under-performing
receivables to Legal receivables when a debt pack is signed that would lead to an emolument attachment order, the debtor is placed under
administration or debt review. This is considered a default.

- Write off policy
The group writes off a receivable when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic
prospect of recovery. Any recoveries made are recognised in profit or loss.
From the trade receivables allocated to the collections book, loans that are 180 days overdue are fully written off unless the debtor was
transferred to the legal book.
- Bad debt recovered

In the event that debt which has been written off is recovered the bad debt recovered is recognised directly in the profit and loss statement.

- Credit risk

Details of credit risk are included in the trade and other receivables note and the financial instruments and risk management Note 28.
- Derecognition

Refer to the derecognition section of the accounting policy for the policies and processes related to derecognition. Any gains or losses arising on
the derecognition of trade and other receivables is included in profit or loss in the derecognition gains (losses) on financial assets at amortised
cost line item.

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