DMIT_Annual_Report_2018_EN

N OTES TO THE C ONSOLIDATED F INANCIAL S TATEMENTS Dar Al-Maal Al-Islami Trust 24 New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2018 and not early adopted. IFRS 16 – “Leases” replaces the current guidance in IAS 17 and is a far-reaching change in accounting by lessees in particular. For lessors, the accounting stays almost the same. However, as the IASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group is in the process of assessing the potential impact of the application of IFRS 16 on the amounts reported and disclosures made in this financial information. IFRS 17- ‘Insurance Contracts’ (effective 1 January 2021). IFRS 17 was issued in May 2017 as replacement for IFRS 4 Insurance Contracts. It requires a current measurement model where estimates are re-measured each reporting period. Contracts are measured using the building blocks of: - discounted probability-weighted cash flows; - an explicit risk adjustment; and - a contractual service margin (“CSM”) representing the unearned profit of the contract which is recognised as revenue over the coverage period. The standard allows a choice between recognising changes in discount rates either in the statement of income or directly in other comprehensive income. The choice is likely to reflect how the Company account for its financial assets under IFRS 9. An optional, simplified premium allocation approach is permitted for the liability for the remaining coverage for short duration contracts, which are often written by the company. There is a modification of the general measurement model called the ‘variable fee approach’. The new rules will affect the financial statements and key performance indicators of all entities that issue insurance contracts or investment contracts with discretionary participation features. Summary of significant accounting policies Measurement methods Amortised cost and effective profit rate The amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective profit method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance. The effective profit rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset (i.e. its amortised cost before any impairment allowance) or to the amortised cost of a financial liability. The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts, fees and points paid or received that are integral to the effective profit rate, such as origination fees. For purchased or originated credit- assets that are credit-impaired at initial recognition the Group calculates the credit-adjusted effective profit rate, which is calculated based on the amortised cost of the financial asset instead of its gross carrying amount and incorporates the impact of expected credit losses in estimated future cash flows. When the Group revises the estimates of future cash flows, the carrying amount of the respective financial assets or financial liability is adjusted to reflect the new estimate discounted using the original effective profit rate. Any changes are recognised in consolidated statement of income. Income from investments in financings Profit is calculated by applying the effective profit rate to the gross carrying amount of financial assets, except for: (a) POCI financial assets, for which the original credit-adjusted effective profit rate is applied to the amortised cost of the financial asset. (b) Financial assets that are not “POCI” but have subsequently become credit – impaired (or ‘stage 3’), for which profit revenue is calculated by applying the effective profit rate to their amortised cost (i.e. net of the expected credit loss provision). Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. At initial recognition, the Group measures a financial asset or financial liability at its fair value