Notes to the Consolidated Financial Statements
and receivables that are not quoted
in an active market. Loans and
receivables are carried at amortised
cost using the effective yield method.
All loans are recognised when cash
is advanced to the customer.
(c) Held-to-maturity
Held-to-maturity investments are
non-derivative financial assets with
fixed or determinable payments and
fixed maturities and there is the
intent and the ability to hold them to
maturity. If more than an insignificant
amount of held-to-maturity assets is
sold, the entire category will be
considered tainted and reclassified
as available-for-sale.
Held-to-maturity investments are
carried at amortised cost using the
effective yield method, less any
provision for impairment.
(d) Available-for-sale
Available-for-sale investments are
those intended to be held for an
indefinite period of time, which may
be sold in response to needs for
liquidity or changes in exchange
rates, equity prices or other market
rates. All regular way purchases
and sales of investment securities
are recognised at trade date, which
is the date that the entity commits to
purchase or sell the asset.
Available-for-sale investments are
initially recognised at fair value
(which includes transaction costs)
and subsequently carried at fair
value. The fair values of quoted
investments in active markets are
based on current bid prices. If the
market for a financial asset is not
active or the asset is an unlisted
security, the Group establishes
fair value by using valuation
techniques. These include the use
of recent arm’s length transactions,
discounted cash flow analysis,
option pricing models and other
valuation techniques commonly
used by market participants.
Unrealised gains and losses arising
from changes in the fair value of
securities classified as available-
for-sale which are not part of a
hedging relationship are recognised
in comprehensive income. When
the securities are disposed of or
impaired, the related accumulated
fair value adjustments are included in
the consolidated statement of income
as gains or losses from investment
securities. Dividends declared are
included in dividend income.
Changes in the fair value of
monetary securities denominated in
a foreign currency and classified
as available-for-sale are analysed
between translation differences
resulting from changes in amortised
cost of the security and other
changes in the carrying amount
of the security. The translation
differences on monetary securities
are recognised in profit and loss;
translation differences on non
monetary securities are recognised
in comprehensive income. Changes
in the fair value of monetary and
non-monetary securities classified
as available-for-sale are recognised
in comprehensive income.
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 include:
i) Delinquency in contractual
payments of principal or
return;
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 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 profit 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
statement of income. If a loan or
held-to-maturity investment has a
variable profit rate, the discount rate
for measuring any impairment loss
is the current effective profit 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
23
Dar Al-Maal Al-Islami Trust
Annual Report 2012
