2018E — Page 102

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

1

SIGNIFICANT ACCOUNTING POLICIES (Continued)

(j)

Credit losses and impairment of assets

(i)

Credit losses from financial instruments, contract assets and lease receivables

(A)

Policy applicable from 1 January 2018

The Group recognises a loss allowance for ECLs on the following items:

financial assets measured at amortised cost (including cash and cash equivalents, trade and other receivables and loans to associates and joint venture);

contract assets as defined in HKFRS 15 (see note 1(k)(iii));

debt securities measured at FVOCI (recycling); and

lease receivables.

Financial assets measured at fair value, including units in trust funds and equity securities designated at FVOCI (non-recycling) are not subject to the ECL assessment.

Measurement of ECLS

ECLS are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive).

The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material:

fixed-rate financial assets, trade and other receivables and contract assets: effective interest rate determined at initial recognition or an approximation thereof;

variable-rate financial assets: current effective interest rate; and

lease receivables: discount rate used in the measurement of the lease receivable.

The maximum period considered when estimating ECLS is the maximum contractual period over which the Group is exposed to credit risk.

In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.

Hong Kong Ferry (Holdings) Company Limited

Annual Report 2018