Notes to the Consolidated Financial Statements
24
Dar Al-Maal Al-Islami Trust
Annual Report 2013
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.
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
fair value less costs to sell. Gains
and losses on the disposal of an
entity include the carrying amount of
goodwill relating to the entity sold.
Goodwill is allocated to cash-
generating units for the purpose of
impairment testing.
(b) Computer software
Acquired computer software licenses
are capitalised on the basis of the
costs incurred to acquire and bring
to use the specific software. These
costs are amortised on the basis of
the expected useful lives (three to
five years).
Costs associated with developing
or maintaining computer software
programs are recognised as an
expense as incurred. Costs that
are directly associated with the
production of identifiable and
unique software products controlled
by the Group, and that will probably
generate economic benefits
exceeding costs beyond one year,
are recognised as intangible assets.
Direct costs include software
development employee costs and
an appropriate portion of relevant
overheads.
Computer software development
costs recognised as assets are
