Page 126 - Urban Renewal Authority 2023-24 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

(expressed in Hong Kong Dollars)

2. Material accounting policies (Continued)

(h) Credit losses and impairment of assets
(i) Credit losses from financial instruments and lease receivables
The Group recognises a loss allowance for expected credit loss (“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 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.

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