Microsoft Word - DMIT FINANCIAL STATEMENTS 2025-Final draft.

Dar Al-Maal Al-Islami Trust NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2025 in thousands of USD 24 3. Significant accounting judgements and estimates (continued) Impairment assessment of financial contracts subject to credit risk (continued) Credit-impaired financial assets At each reporting date, the Group assesses whether financial assets carried at amortized cost are credit- impaired. A financial asset is 'credit-impaired' when one or more events that have detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable events:  All or any of the facility/ies in which any instalment or part thereof is outstanding for a period of 90 days or more  All or any of the facility/ies put on non-accrual status (i.e. profit suspended)  All or any of the facility/ies wherein ‘specific provision’ is set aside individually  Breach of financial covenants that are considered material. The Group will determine materiality based on negative impact of breach on the credit rating of the obligor.  Event driven defaults such as declaration of bankruptcy (filed by the borrower or initiated by the Group against the borrower), death of borrower (in absence of succession plan or professional management), and other specific events which would significantly impact the borrower’s ability the Group.  The Group makes a charge-off or account-specific provision resulting from a significant perceived decline in credit quality subsequent to the Group taking on the exposure;  The Group transfers the credit obligation at less than the cash equivalent value;  The Group consents to a distressed restructuring of the credit obligation where this is likely to result in a diminished financial obligation caused by the material forgiveness, or postponement, of repayment instalments;  Distressed restructuring refers to situations when the Group grants a concession that it would not otherwise consider, irrespective of whether the concession is at the discretion of the Group or otherwise. Forgiveness means reduction in repayment amount or profit. Postponement could include grace periods or changes in instalments leading to delayed maturity.  The Group considers that the obligor is unlikely to pay its credit obligations in full (i.e. principal, profit, fees or any other amount), without taking actions such as realizing security (if held). Presentation of allowance for ECL in the statement of financial position Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Loss on undrawn commitments and financial guarantees are disclosed in other liabilities. Write-off Financial assets are written off either partially or in their entirety only when the Group has stopped pursuing the recovery. If the amount to be written off is greater than the accumulated loss allowance, the difference is first treated as an addition to the allowance that is then applied against the gross carrying amount. Any subsequent recoveries are credited to credit loss expense. The Group writes off financial assets, in a whole or in part, when it has exhausted all practical recovery efforts and has concluded there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery (i) ceasing enforcement activity and (ii) where the Group’s recovery method is foreclosing on a collateral and the value of the collateral is such that there is no reasonable expectation of recovering in full. The Group may however write-off financial assets that are still subject to enforcement activity. Impairment of goodwill Impairment exists when carrying value of an asset or cash generating unit (CGU) exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The recoverable amount of the cash-generating unit’s goodwill is based on value-in-use calculations using cash flow projections from financial budgets approved by the Board of Directors, extrapolated for three years projection using nominal projected growth rate. The determination of projected growth rate and discount rate involves judgment whereas, preparation of cash flow projections requires various management assumptions. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates based on the actual loss experience.