Notes to the Consolidated Financial Statements
48
Dar Al-Maal Al-Islami Trust
Annual Report 2012
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)
