Basic HTML Version
Investments in financings
Investments in financings are stated net of provisions for impairment. The
estimated fair value of investments in financings represents the discounted
amount of estimated future cash flows expected to be received. Expected cash
flows are discounted at current market rates to determine fair value.
Due to banks and customers
The estimated fair value of deposits with no stated maturity, which includes
non-interest bearing deposits, is the amount repayable on demand.
Fair value
In the opinion of Group management, the fair value of those financial
instruments which are measured at amortised cost in the consolidated
statement of financial position are not significantly different from their carrying
values since assets and liabilities are either short-term in nature or in the case
of customer financing and deposits, are linked to the market variable rates and
hence are being regularly repriced.
c) Fair value hierarchy
IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs
to those valuation techniques are observable or unobservable. Observable
inputs reflect market data obtained from independent sources; unobservable
inputs reflect the Group’s market assumptions. These two types of inputs have
created the following fair value hierarchy:
•
Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1). This level includes listed equity securities and debt
instruments on exchanges and exchange traded derivatives like futures.
•
Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices) (level 2). This level includes the
majority of the OTC derivative contracts, traded loans and issued
structured debt.
•
Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (level 3). This level includes equity
investments and debt instruments with significant unobservable
components.
The level in the fair value hierarchy within which the fair value measurement is
categorised in its entirety is determined on the basis of the lowest level input that
is significant to the fair value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value measurement in
its entirety. If a fair value measurement uses observable inputs that require
significant adjustment based on unobservable inputs, that measurement is a
level 3 measurement. Assessing the significance of a particular input to the
fair value measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
The determination of what constitutes ‘observable’ requires significant
judgement by the Group. The Group considers observable data to be that
market data that is readily available, regularly distributed or updated, reliable
and verifiable, not proprietary, and provided by independent sources that are
actively involved in the relevant market.
11. Fair value of financial
instruments
(continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
50
Dar Al-Maal Al-Islami Trust
Annual Report 2011