Wah Seong Corporation Berhad Annual Report 2020

186 WAH SEONG CORPORATION BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2020 45 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk (continued) (a) Receivables (continued) General 3-stage approach for other debt instruments financial assets (continued) Based on the above, loss allowance is measured on either 12 month ECL or lifetime ECL using a PD x LGD x EAD methodology as follows: • PD (“probability of default”) – the likelihood that the debtor would not be able to repay during the contractual period; • LGD (“loss given default”) – the percentage of contractual cash flows that will not be collected if default happens; and • EAD (“exposure at default”) – the outstanding amount that is exposed to default risk. In deriving the PD and LGD, the Group and the Company consider 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; and • debtor’s past history and existing market conditions. Loss allowance is measured at a probability-weighted amount that reflects the possibility that a credit loss occurs and the possibility that no credit loss occurs. No significant changes to estimation techniques or assumptions were made during the reporting period. There is no loss allowance for other financial asset at amortised cost as at 31 December 2020, except for other receivables, amount owing by subsidiaries, amount owing by joint ventures and amount owing by associates. For movement of allowance for impairment of trade and other receivables, amount owing by subsidiaries, amount owing by joint ventures and amount owing by associates, refer to Note 16, 17(a), 18(a) and 19(a) respectively. (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 2020 and 31 December 2019, 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 2020, there is no loss allowance recognised on interest bearing loans to subsidiaries as all strategies indicate that the Company could fully recover the outstanding balance of the advances to subsidiaries, except for a subsidiary. For movement of allowance for impairment of amount owing by subsidiaries, refer to Note 17(a). As at 31 December 2019, there was no indication that the loans and advances extended to the subsidiaries are not recoverable. Advances to subsidiaries Advances 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 advances to subsidiaries. There is no loss allowance recognised on these advances to subsidiaries as all strategies indicate that the Company could fully recover the outstanding balance of the advances to subsidiaries. Advances 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 advances to subsidiary.