Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. After initial measurement, such
financial assets are subsequently measured at amortized cost using the effective interest
method, less impairment. Amortized cost is calculated by taking into account any
discount or premium on acquisition and fees or costs that are an integral part of the
effective interest rate. Losses arising from impairment are recognized in the surplus or
deficit.
Held-to-maturity
Non-derivative financial assets with fixed or determinable payments and fixed maturities
are classified as held to maturity when the LGU has the positive intention and ability to
hold them to maturity. After initial measurement, held-to-maturity investments are
measured at amortized cost using the effective interest method, less impairment.
Amortized cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the effective interest rate. The
losses arising from impairment are recognized in surplus or deficit.
Derecognition
The LGU derecognizes a financial asset or, where applicable, a part of a financial asset
or part of a group of similar financial assets when:
(a) The rights to receive cash flows from the asset have expired or are waived; and
(b) The LGU has transferred its rights to receive cash flows from the asset or has assumed
an obligation to pay the received cash flows in full without material delay to a third
party; and either: (a) the LGUs have transferred substantially all the risks and rewards
of the asset; or (b) the LGUs have neither transferred nor retained substantially all
the risks and rewards of the asset, but has transferred control of the asset.
Impairment of financial assets
The LGU assesses at each reporting date whether there is objective evidence that a
financial asset or a group of financial assets is impaired. A financial asset or a group of
financial assets is deemed to be impaired if, there is objective evidence of impairment as
a result of one or more events that has occurred after the initial recognition of the asset
(an incurred ‘loss event’) and that loss event has an impact on the estimated future cash
flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include the following indicators:
(a) The debtors or a group of debtors are experiencing significant financial difficulty;
(b) Default or delinquency in interest or principal payments;
(c) The probability that debtors will enter bankruptcy or other financial reorganization;
and
(d) Observable data indicates a measurable decrease in estimated future cash flows (e.g.,
changes in arrears or economic conditions that correlate with defaults).
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