KIM HENG OFFSHORE & MARINE HOLDINGS LIMITED
ANNUAL REPORT 2014
67
NOTES
TO THE FINANCIAL STATEMENTS
3
SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
3.7 Financial instruments (Cont’d)
(iv) Financial guarantees
Financial guarantees are financial instruments issued by the Company that require the issuer
to make specified payments to reimburse the holder for the loss it incurs because a specified
debtor fails to meet payment when due in accordance with the original or modified terms of a
debt instrument. Financial guarantees are recognised initially at fair value and are classified as
financial liabilities
Subsequent to initial measurement, the financial guarantees are stated at the higher of the
initial fair value less cumulative amortisation and the amount that would be recognised if they
were accounted for as contingent liabilities. When financial guarantees are terminated before
their original expiry date, the carrying amount of the financial guarantee is transferred to profit
or loss.
3.8 Impairment
(i)
Non-derivative financial assets
A financial asset not carried at fair value through profit or loss is assessed at the end of each
reporting date to determine whether there is objective evidence that it is impaired. A financial
asset is impaired if objective evidence indicates that a loss event has occurred after the initial
recognition of the asset, and that the loss event had a negative effect on the estimated future
cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a
debtor, restructuring of an amount due to the Group on terms that the Group would not consider
otherwise, or indications that a debtor or issuer will enter bankruptcy, or adverse changes in the
payment status of borrowers or issuers.
Loans and receivables
The Group considers evidence of impairment for loans and receivables at both a specific asset
and collective level. All individually significant loans and receivables are assessed for specific
impairment. All individually significant loans and receivables found not to be specifically
impaired are then collectively assessed for any impairment that has been incurred but not yet
identified. Loans and receivables that are not individually significant are collectively assessed
for impairment by grouping together loans and receivables with similar risk characteristics.
In assessing collective impairment, the Group uses historical trends of the probability of default,
timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as
to whether current economic and credit conditions are such that the actual losses are likely to
be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as
the difference between its carrying amount and the present value of the estimated future cash
flows, discounted at the asset’s original effective interest rate. Losses are recognised in profit
or loss and reflected in an allowance account against loans and receivables. Interest on the
impaired asset continues to be recognised. When a subsequent event causes the amount of
impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
