Home' Trinidad and Tobago Guardian : December 27th 2013 Contents Friday, December 27, 2013 www.guardian.co.tt Guardian
Consolidated Financial Statements
30 September 2013
Notes to the Consolidated Financial Statements (continued)
(expressed in Trinidad and Tobago dollars)
2 Summary of Significant Accounting Policies (continued)
2.5 Financial assets and financial liabilities (continued)
2.5.1 Financial assets (continued)
(d) Held to maturity
Held to maturity investments are financial assets with fixed or determinable payments and fixed
maturity dates where management has the positive intention and the ability to hold to maturity,
(i) those that the Group upon recognition designates at fair value through profit or loss
(ii) those that the Group designates as available-for-sale
(iii) those that meet the definition of loans and receivables
Held to maturity investments are initially recognised at fair value including direct and incremental
transaction costs and are measured subsequently at amortised cost, using the effective interest method.
2.5.2 Financial liabilities
The Group measures financial liabilities at amortised cost. Financial liabilities measured at amortised
cost include deposits from banks or customers, bonds payables, other funding instruments and notes
due to related parties.
2.5.3 Recognition and de-recognition of financial instruments
The Group uses trade date accounting for regular way contracts when recording financial assets
transactions. Financial assets that are transferred to third parties but do not qualify for derecognition
are presented as assets pledged as collateral if the transferee has the right to sell or re-pledge them.
Financial assets are derecognised when the contractual right to receive the cashflows from these assets
have ceased to exist or the assets have been transferred and substantially all the risks and rewards of
ownership of the assets are also transferred.
Financial liabilities are de-recognised when they have been redeemed or otherwise extinguished.
2.5.4 Determination of fair value
For financial instruments traded in an active market, the determination of fair values of financial assets
and liabilities is based on quoted market prices or dealer price quotations.
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and
these prices represent actual and regular occurring market transactions on an arm's length basis. If the
above criteria are not met, the market is regarded as being inactive. Indicators that a market is inactive
are when there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few
recent transactions. When a market becomes inactive, the valuation technique utilised makes use of the
quoted price even though the market is not active.
For all other financial instruments, fair value is determined using valuation techniques. In these
techniques, fair values are estimated from observable data in respect of similar financial instruments,
using models to estimate the present value of expected future cash flows or other valuation techniques
using input existing at the year end.
The Group uses an internally developed model which is generally consistent with other valuation
models used in the industry. Valuation models are used to value unlisted debt securities and other debt
securities for which the market has become or is illiquid. Some of the inputs of this model may not be
market observable and are therefore based on assumptions.
The Group may choose to reclassify financial assets that would meet the definition of loans and
receivables out of the available for sale category if the Group has the intention and ability to hold these
financial assets for the foreseeable future or until maturity at the date of reclassification.
Reclassifications are made at fair values at the reclassification date. Fair value becomes the new cost or
amortised cost as applicable, and no reversals of fair value gains or losses recorded before reclassification
date are made. Effective interest rates for financial assets reclassified to loans and receivables and held
to maturity categories are determined at the reclassification date.
2.7 Impairment of financial assets
(a) Assets carried at amortised cost
The Group assesses at each reporting date whether there is objective evidence that a financial
asset or group of financial assets is impaired. A financial asset or a group of financial assets is
impaired and impairment losses are incurred only if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the asset (a 'loss event')
and that loss event (or events) has an impact on the estimated future cash flows of the financial
asset or group of financial assets that can be reliably estimated.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss
i) Delinquency in contractual payments of principal or interest;
ii) Cash flow difficulties experienced by the borrower (for example, equity ratio, net income
percentage of sales);
iii) Breach of loan covenants or conditions;
iv) Initiation of bankruptcy proceedings;
v) Deterioration of the borrower's competitive position;
vi) Deterioration in the value of collateral; and
vii) Downgrading below investment grade level.
The estimated period between a loss occurring and its identification is determined by local
management for each identified portfolio. In general, the periods used vary between three (3)
months and twelve (12) months; in exceptional cases, longer periods are warranted.
The Group first assesses whether objective evidence of impairment exists individually for financial
assets that are individually significant, and individually or collectively for financial assets that are
not individually significant. If the Group determines that no objective evidence of impairment
exists for an individually assessed financial asset, whether significant or not, it includes the asset in
a group of financial assets with similar credit risk characteristics and collectively assesses them for
impairment. Assets that are individually assessed for impairment and for which an impairment loss
is or continues to be recognised are not included in a collective assessment of impairment.
The amount of the loss is measured as the difference between the asset's carrying amount and
the present value of estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial asset's original effective interest rate. The carrying amount
of the asset is reduced through the use of an allowance account and the amount of the loss is
recognised in the consolidated income statement. If a loan has a variable interest rate, the discount
rate for measuring any impairment loss is the current effective interest rate determined under
the contract. As a practical expedient, the Group may measure impairment on the basis of an
instrument's fair value using an observable market price.
The calculation of the present value of the estimated future cash flows of a collateralised financial
asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling
the collateral, whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis
of similar credit risk characteristics (i.e. on the basis of the Group's grading process that considers
asset type, industry, geographical location, collateral type, past-due status and other relevant
factors). Those characteristics are relevant to the estimation of future cash flows for groups of
such assets by being indicative of the debtors' ability to pay all amounts due according to the
contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of the contractual cash flows of the assets in the group and historical loss
experience for assets with credit risk characteristics similar to those in the group. Historical loss
experience is adjusted on the basis of current observable data to reflect the effects of current
conditions that did not affect the period on which the historical loss experience is based and to
remove the effects of conditions in the historical period that do not currently exist. Estimates of
changes in future cash flows for groups of assets should reflect and be directionally consistent with
changes in related observable data from period to period (for example, changes in unemployment
rates, property prices, payment status, or other factors indicative of changes in the probability of
losses to the Group and their magnitude). The methodology and assumptions used for estimating
future cash flows are reviewed regularly by the Group to reduce any differences between loss
estimates and actual loss experience.
When a loan is uncollectible, it is written off against the related provision for loan impairment.
Such loans are written off after all the necessary procedures have been completed and the amount
of the loss has been determined. If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment
was recognised (such as an improvement in the debtor's credit rating), the amount of the reversal
is recognised in the consolidated income statement in impairment loss on loans net of recoveries.
(b) Assets classified as available-for-sale
The Group assesses at the year end whether there is objective evidence that a financial asset or a
group of financial assets is impaired. In the case of equity investments classified as available-for-
sale, a significant or prolonged decline in the fair value of the security below its cost is considered
in determining whether the assets are impaired. If any such evidence exists for available-for-sale
financial assets, the cumulative loss -- measured as the difference between the acquisition cost
and the current fair value, less any impairment loss on that financial asset previously recognised
in profit or loss -- is removed from equity and recognised in the consolidated income statement.
Impairment losses recognised in the consolidated income statement on equity instruments are not
reversed through the consolidated income statement.
Debt securities are classified based on the criteria in Note 2.7 (a). If, in a subsequent period, the
fair value of a debt instrument classified as available-for-sale increases and the increase can be
objectively related to an event occurring after the impairment loss was recognised in profit or loss,
the impairment loss is reversed through the consolidated income statement.
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