Page 128 - URA Annual Report 2020-21

NOTES TO THE FINANCIAL STATEMENTS
(expressed in Hong Kong Dollars)
2.
Significant accounting policies (Continued)
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URA ANNUAL REPORT 2020-21
(h)
Credit losses and impairment of assets (Continued)
(i) Credit losses from financial instruments and lease receivables (Continued)
Financial assets measured at fair value, including investments measured at fair value through profit or loss (“FVPL”), are not subject to the ECLs 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.
ECLs are measured on either of the following bases:
– 12-month ECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and
– lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECLs model applies.
Loss allowances for trade receivables and lease receivables are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.