Annual Report 2024

Dar Al-Maal Al-Islami Trust NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2024 in thousands of USD 24 3. Significant accounting judgements and estimates (continued) Impairment of investment securities at fair value through other comprehensive income (FVTOCI) (continued) assessed to be inactive, the Group determines impairment based on its assessment of fair value and the investee companies’ financial health, industry and sector performance. In the extra-ordinary market conditions, for the purpose of determination of what constitutes significant or prolonged decline in fair value of investments, the management takes into account the following additional factors: • Their intention relating to the respective holding years of such investments i.e. for trading purposes, or with intention for strategic investment, or for long-term dividends and capital gains etc.; • As to whether the decline in value of investment is in line with the overall trend of decline in the relevant or local market corresponding to the uncertain economic condition; • Forecasts of expected recovery of market values within the expected holding years; and/ or • Forecasts of the expected recovery of the core business of the investee entity within the expected holding years and consequential cash flows to the institution. Measurement of the expected credit loss allowance The measurement of ECL allowance for financial assets measured at amortised cost and FVOCI is an area that requires the use of complex models and significant assumptions about future economic conditions and credit behaviour (e.g. the likelihood of customers defaulting and the resulting losses). A number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as: Determining criteria for significant increase in credit risk; a. Choosing appropriate models and assumptions for the measurement of ECL; b. Establishing the number and relative weightings of forward-looking scenarios for each type of product/market and the associated ECL; and c. Establishing groups of similar financial assets for the purposes of measuring ECL. Each financing and investment exposure is evaluated individually for impairment. In assessing impairment, the Group exercises judgement in the estimation of the amount and timing of future cash flows as well as an assessment of whether credit risk on the financial contracts has increased significantly since initial recognition and incorporation of forward-looking information in the measurement of ECL in accordance with impairment policy. The staging and ECL of related party exposures is considered separately from the other financing assets. The ECL is assessed using the cash shortfall method since the underlying collateral can be taken over without having to apply any haircut. Further, the increase in credit risk is also assessed separately for related parties, given their commitment to honour the amounts due to the Group. ECL were estimated based on a range of forecast economic conditions available as at the latest available date. Fair value of investment properties and net realisable value of development property Investment properties are carried at their fair values. Development property is stated at lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less estimated selling expenses. The Group reviews the carrying amounts of the investment properties and development properties at each annual reporting date to determine the fair value of the properties. In making this judgement, the Group evaluates the fair value of investment property based on a report from an independent valuer. Fair value is based on comparable transactions identified by an independent valuer with reference to proposed sales transactions in the same vicinity, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset.