Wah Seong Corporation Berhad Annual Report 2018

46 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk (continued) (a) Receivables (continued) Simplified approach for trade receivables and contract assets (including intercompany trade balances) The Group and the Company apply simplified approach to providing for expected credit losses prescribed by MFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables and contract assets. The Group and the Company accounts for its credit risk by appropriately providing for expected credit losses on timely basis. In calculating credit loss rate, the trade receivables and contract assets have been assessed based on credit risk categories and the days past due and adjust for forward looking information. Financial assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the Group and the Company. The Group and the Company categorise a receivable for write off when a debtor fails to make contractual payments and the recoverability of the receivables is remote. Where trade receivables have been written off, the Group and the Company continues to engage in enforcement activity to attempt to receiver the receivable due. Where recoveries are made, these are recognised in profit or loss. General 3-stage approach for other debt instruments financial assets Other debt instruments financial assets at amortised costs include other receivables, non-trade intercompany balances, time deposits and cash and bank balances. All of these financial assets are considered to have low credit risk, and thus the impairment provision recognised during the financial year was limited to 12 months expected credit losses. These financial assets instruments are considered to be low credit risk when they have a low risk of default and the counterparties have strong capacity to meet its contractual cash flow obligations in the near term. Bank deposits are placed with licensed financial institutions with high credit ratings assigned by credit rating agencies and hence, the credit risk is considered to be low. Historically, the Company’s loss arising from credit risk is negligible. However, the Company considers available reasonable and supportive forward looking information, such as: • significant changes in the expected performance and behaviour of the debtor, including changes in the payment status of debtor and changes in the business of the debtor; • debtor’s past history and existing market conditions There is no loss allowance provision for other financial asset at amortised cost as at 31 December 2018, except for other receivables. For movement of allowance for impairment of trade and other receivables, refer to Note 18. (b) Intercompany balances The Company provides unsecured loans and advances to subsidiaries. The Company monitors the results of its subsidiaries regularly. As at 31 December 2018 and 31 December 2017, the maximum exposure to credit risk is represented by their carrying amounts in the statement of financial position. Management has taken reasonable steps to ensure that intercompany receivables are stated at the realisable values. As at 31 December 2018 and 31 December 2017, there was no indication that the loans and advances extended to the subsidiaries are not recoverable. Loan to subsidiaries Loan to subsidiaries that are repayable on demand and interest-free are classified as amortised cost in the Company’s financial statements because the Company’s business model is to hold and collect the contractual cash flows and those cash flows represent solely payments of principal and interest. The Company applied the general 3-stage approach when determining ECL for these loans to subsidiaries. No additional loss allowance is recognised on these loans to subsidiaries upon adoption of MFRS 9 as all strategies indicate that the Company could fully recover the outstanding balance of the loans to subsidiaries. Loans to subsidiaries in the Company’s separate financial statements are assessed on individual basis for ECL measurement, as credit risk information is obtained and monitored based on each loan to subsidiary. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018 WAH SEONG CORPORATION BERHAD 170