Notes to the Consolidated Financial Statements
(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
in 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 previously
recognised impairment loss is
reversed by adjusting the allowance
account. The amount of the reversal
is recognised in the consolidated
statement of income.
In the case of Islamic financings to
customers in countries where there
is an increased risk of difficulties
in servicing external debt, an
assessment of the political and
economic situation is made and
additional country risk provisions
may be established.
(b) Assets classified
as available-for-sale
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 equity 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
statement of income. Impairment
losses recognised in the consolidated
statement of income on equity
instruments are not reversed through
the consolidated statement of income.
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
statement of income.
(c) Renegotiated loans
Loans that are either subject to
collective impairment assessment or
individually significant and whose
terms have been renegotiated are
no longer considered to be past
due but are treated as new loans.
In subsequent years, the asset is
considered to be past due and
disclosed only if renegotiated.
Impairment of non-financial
assets
Assets that have an indefinite useful
life are not subject to amortisation
and are tested annually for
impairment. Assets that are subject
to amortisation are reviewed for
impairment whenever events or
changes in circumstances indicate
that the carrying amount may not
be recoverable. An impairment loss
is recognised for the amount by
which the asset’s carrying amount
exceeds its recoverable amount.
The recoverable amount is the
higher of an asset’s fair value less
costs to sell and value in use.
For the purposes of assessing
impairment, assets are grouped at
the lowest levels for which there
are separately identifiable cash
flows (cash-generating units). Non-
financial assets other than goodwill
that suffered an impairment are
reviewed for possible reversal of the
impairment at each reporting date.
Investments with Islamic
Institutions
Investments with Islamic institutions
comprises mainly short term
deposits in the form of parallel
purchase and sale of currencies
and commodities (PPSC), which
are spot purchases of internationally
traded currencies and commodities
and a corresponding forward sale
of the same. For the purpose of
accounting, these are treated as term
deposits and the return is recorded
as income from investments with
Islamic institutions in the statement
of income.
Intangible assets
(a) Goodwill
Goodwill represents the excess of
the cost of an acquisition over the
fair value of the Group’s share
of the net identifiable assets of
the acquired subsidiary/associate
at the date of acquisition. Goodwill
on acquisitions of subsidiaries
is included in intangible assets.
Goodwill on acquisitions of
associates is included in
investments in associates. Goodwill
on subsidiaries is tested annually
for impairment and carried at cost
less accumulated impairment
losses. An impairment loss is
recognised for the amount by
which the asset’s carrying amount
exceeds its recoverable amount. The
recoverable amount is an asset’s
24
Dar Al-Maal Al-Islami Trust
Annual Report 2012
