Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 155 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 28. FINANCIAL INSTRUMENTS (CONT’D) (a) Financial Risk Management Policies (Cont’d) Credit Risk (Cont’d) (iii) Assessment of impairment losses (Cont’d) • Other receivables (Cont’d) Inputs, Assumptions and Techniques used for Estimating Impairment Losses (Cont’d) In deriving the PD and LGD, the Group considers the receivable’s past payment status and its financial condition as at the reporting date. The PD is adjusted to reflect current and forwardlooking information on macroeconomic factors affecting the ability of the receivable to settle its debts using the linear regressive analysis. The Group has identified the unemployment rate, Gross Domestic Product and inflation rate, as the key macroeconomic factors of the forward-looking information. There are no significant changes in the estimation techniques and assumptions as compared to the previous financial year. Allowance for Impairment Losses Based on the assessment performed, the identified impairment loss was immaterial and hence, it is not provided for. • Fixed deposits with licensed banks, cash and bank balances The Group considers the licensed banks have low credit risks. In addition, some of the bank balances are insured by Government agencies. Therefore, the Group is of the view that the loss allowance is immaterial and hence, it is not provided for. • Amount owing by subsidiaries The Company applies the 3-stage general approach to measuring expected credit losses for amount owing by subsidiaries. Inputs, Assumptions and Techniques used for Estimating Impairment Losses The Company measures the expected credit losses on individual basis, which is aligned with its credit risk management practices on the inter-company balances. The Company considers loans and advances to subsidiaries have low credit risks. The Company assumes that there is a significant increase in credit risk when a subsidiary’s financial position deteriorates significantly. As the Company is able to determine the timing of payments of the loans and advances when they are payable, the Company considers the loans and advances to be in default when the subsidiaries are not able to pay when demanded. For loans and advances that are repayable on demand, impairment loss is assessed based on the assumption that repayment of the outstanding balances is demanded at the reporting date. If the subsidiary does not have sufficient highly liquid resources when the loans and advances are demanded, the Company will consider the expected manner of recovery to measure the impairment loss; the recovery manner could be either through ‘repayable over time’ or a fire sale of less liquid assets by the subsidiary. For loans and advances that are not repayable on demand, impairment loss is measured using techniques that are similar for estimating the impairment losses of other receivables as disclosed above.
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