FRENCKEN GROUP LIMITED
ANNUAL REPORT 2015
68
NOTES TO FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015 (CONT’D)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
(u) Financial assets (Cont'd)
(v) Impairment
The Group and the Company assess at each balance sheet date whether there is objective evidence that a
financial asset or a group of financial assets is impaired and recognises an allowance for impairment when
such evidence exists.
(a)
Loans and receivables
Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy, and
default or significant delay in payments are objective evidence that these financial assets are impaired.
The carrying amount of these assets is reduced through the use of an impairment allowance account
which is calculated as the difference between the carrying amount and the present value of estimated
future cash flows, discounted at the original effective interest rate. When the asset becomes
uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts
previously written off are recognised against the same line item in the income statement.
The allowance for impairment loss account is reduced through the income statement in a subsequent
period when the amount of impairment loss decreases and the related decrease can be objectively
measured. The carrying amount of the asset previously impaired is increased to the extent that the
new carrying amount does not exceed the amortised cost, had no impairment been recognised in
prior periods.
(b) Financial assets, available-for-sale
In the case of an equity security classified as available-for-sale, a significant or prolonged decline in the
fair value of the security below its cost is considered an indicator that the security is impaired.
When there is objective evidence that an available-for-sale financial asset is impaired, the cumulative
loss that has been recognised directly in the fair value reserve is removed from the fair value reserve
within equity and recognised in the income statement. The cumulative loss is measured as the
difference between the acquisition cost (net of any principal repayments and amortisation) and the
current fair value, less any impairment loss on that financial asset previously recognised in income
statement.
(v) Fair value estimation of financial assets and liabilities
The fair values of financial instruments traded in active markets (such as exchange-traded and over-the-counter
securities and derivatives) are based on quoted market prices at the balance sheet date. The quoted market
prices used for financial assets are the current bid prices; the appropriate quoted market prices for financial
liabilities are the current asking prices.
The fair values of financial instruments that are not traded in an active market are determined by using valuation
techniques. The Group and the Company use a variety of methods and makes assumptions that are based on
market conditions existing at each balance sheet date. Where appropriate, quoted market prices or dealer quotes
for similar instruments are used. Valuation techniques, such as discounted cash flow analyses, are also used to
determine the fair values of the financial instruments.
The fair values of currency forwards are determined using actively quoted forward exchange rates. The fair
values of interest rate swaps are calculated as the present value of the estimated future cash flows discounted
at actively quoted interest rates.
The fair values of current financial assets and liabilities carried at amortised cost approximate their carrying
amounts.
