Urban Renewal Authority 2018-19 Annual Report

130 (expressed in Hong Kong Dollars) NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (Continued) (h) Credit losses and impairment of assets (i) Credit losses from financial instruments and lease receivables A. Policy applicable from 1 April 2018 The Group recognises a loss allowance for ECLs on the following items: – financial assets measured at amortised cost (including cash and bank balances, trade receivables, investments at amortised cost, financial assets included in prepayments, deposits and other receivables, building rehabilitation loans and amounts due from joint development projects); and – lease receivables. Financial assets measured at fair value, including investments measured at FVPL, 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 and trade and other receivables: effective interest rate determined at initial recognition or an approximation thereof; – variable-rate financial assets: current effective interest rate; – 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.