Impairment of non-financial assets – non-cash generating assets
The LGUs review and tests the carrying value of non-cash-generating assets
when events or changes in circumstances suggest that there may be a reduction in
the future service potential that can reasonably be expected to be derived from
the asset. Where indicators of possible impairment are present, the LGUs
undertake impairment tests, which require the determination of the fair value of
the asset and its recoverable service amount. The estimation of these inputs into
the calculation relies on the use estimates and assumptions.
Any subsequent changes to the factors supporting these estimates and
assumptions may have an impact on the reported carrying amount of the related
asset.
Fair value estimation – financial instruments
Where the fair value of financial assets and financial liabilities recorded in the
statement of financial position cannot be derived from active markets, their fair
value is determined using valuation techniques including the discounted cash
flow model. The inputs to these models are taken from observable markets where
possible, but where this is not feasible, judgment is required in establishing fair
values. Judgment includes the consideration of inputs such as liquidity risk, credit
risk and volatility. Changes in assumptions about these factors could affect the
reported fair value of financial instruments.
Provisions
Provisions were raised and management determined an estimate based on the
information available. Provisions are measured at the management's best estimate
of the expenditure required to settle the obligation at the reporting date, and are
discounted to present value where the effect is material.
Held-to-maturity investments and loans and receivables
The LGUs assess its loans and receivables (including trade receivables) and its
held-to-maturity investments at the end of each reporting period. In determining
whether an impairment loss should be recorded in surplus or deficit, the LGUs
evaluate the indicators present in the market to determine if those indicators are
indicative of impairment in its loans and receivables or held-to-maturity
investments. Where specific impairments have not been identified the impairment
for trade receivables, held-to-maturity investments and loans and receivables is
calculated on a portfolio basis, based on historical loss ratios, adjusted for
national and industry-specific economic conditions and other indicators present at
the reporting date that correlate with defaults on the portfolio. These annual loss
ratios are applied to loan balances in the portfolio and scaled to the estimated loss
emergence period.
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