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AFRICAN DAWN ANNUAL REPORT 2020

Accounting Policies continued

Discounting of interest free loans and loans that bear interest at non-market related rates.
The following judgements are made relating to these loans:

* Credit loans that have no repayment terms are:
- classified as financial liabilities at amortised cost;
- included in current liabilities (because the company does not have the right to defer payment for at least 12 months after the
reporting date;) and
- not discounted because the amount that could be demanded by the lender is equal to the carrying amount of the loans.
* Credit loans that have repayment terms are:
- classified as financial liabilities at amortised cost;
- split between non-current liabilities and current liabilities in accordance with the terms.
- Loans that are interest free or bear interest at a rate that is not market related are discounted at a market related rate. The
imputed interest is deferred onto the Statement of Financial Position and included as part of the loan balance.
* Debit loans that have no repayment terms are:
- classified as financial assets;
- split between non-current assets and current assets in accordance with the intention of the lender;
- assessed for impairment; and
- not discounted because the amount that could be demanded by the lender is equal to the carrying amount of the loans.
* Debit loans that have repayment terms are:
- classified as financial assets;
- split between non-current assets and current assets in accordance with the terms and the intention of the lender;
- assessed for impairment; and
- Loans that are interest free or bear interest at a rate that is not market related are discounted at a market related rate. The imputed
interest is deferred onto the Statement of Financial Position and included as part of the loan balance., or as part of the investment in
the related subsidiary, as applicable.
2020 & 2019

The interest rates that have been applied in the discounting is an effective interest rate of 11,44% (2019: 11.44%).

Modelling assumptions for trade and other receivables

In terms of IFRS9, all loans and advances are assessed at each reporting date to determine whether there has been a significant increase in credit
risk (SICR). In cases where SICR has occurred an impairment equal to the lifetime expected credit loss (ECL) is recognised. Loans are split into 12
month expected credit loss and lifetime expected credit loss categories.

The company considers the following to be SICR events. An assessment of the credit quality of the client after inception of the loan indicates
an increase in credit risk. For intercompany loans this might include advances where the counterparty 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. For trade receivables
this occurs when a debtor is more than 75 days overdue. A SICR event is also noted if a debtors’ loan did not have a performing status for the last
6 months; at any time during the last 6 months, any one of the debtors’ loans were restructured or the debtor was referred to the debt review
process; or subsequent to a claim made on the credit life insurance policy, the outstanding balances on the client’s loans are not zero.

The trade receivables are short term financing. The expected credit loss will therefore always be lifetime expected credit losses for trade
receivables. Risk assessment is however applied in determining whether the debt falls into current receivables, collection receivables and
legal receivables (refer to note 28 for a description of these groups). The allocation of trade receivables to these groups result in shared credit
characteristics within the groups.
The assessment of 12-month versus lifetime expected credit loses as explained above is applied in determining the impairment assessment for
loans receivable (refer to accounting policy 1.14 and note 8).
Historical data may not always be reflective of the future. The way in which it is used by statistical ECL models (PD, EAD, LGD) to estimate the
timing and amount of the forecasted cash flows based on historical default data, roll rates and recoveries, requires consideration of sub-segments.
These include aspects such as client risk groups, time on book, product term, payment frequency, default statuses, employment, industry and
rescheduling status and the behaviour score of the client. Refer to note 28 for further information on the specific estimates and assumptions used
to assesses the recoverability of trade receivables and to note 8 for the assumptions used in impairing loans receivable.
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