Yinson Annual Report 2020

240 Notes to the financial statements (cont’d) For the financial year ended 31 January 2020 Yinson Holdings Berhad SECTION 7 ACCOUNTABILITY 5. Critical accounting estimates and judgements (CONTINUED) (b) Finance lease commitments - Group as lessor (continued) (ii) Determination of lease term The Group determines the lease term based on the period for which the Group has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, when at lease inception it is reasonably certain that the lessee will exercise the option. (iii) Probability of exercise of purchase option The lessee’s purchase option is considered in classifying the lease contract. At lease inception, if it is not reasonably certain that the option will be exercised, the option will not be a part of the basis for classification. If the lessee has an option to purchase the asset at a price that is expected to be sufficiently lower than fair value at the date the option becomes exercisable, the exercise of the option is regarded as reasonably certain. The evaluation of the term “reasonably certain” involves judgement. (c) Measurement of ECL allowance for financial assets The measurement of ECL allowance for financial assets measured at amortised cost is an area that requires the use of significant assumptions about future economic conditions and credit behaviour of customers. Explanation of the inputs, assumptions and estimation techniques used in measuring ECL is detailed in Note 42(b). Areas of significant judgements involved in the measurement of ECL are detailed as follows: (i) Significant increase in credit risk As at reporting date, these receivables were subject to considerable credit risk, because a slight deterioration in cash flows could result in customers missing a contractual payment on these receivables. Accordingly, the Group and the Company have recognised a lifetime ECL on these receivables. (ii) Determining the number and relative weightings of forward-looking scenarios The Group and the Company measures loss allowance at a probability-weighted amount that reflects the possibility of credit loss occurring. This requires forecast of economic variables and their associated impact on PD (‘probability of default’), LGD (‘loss given default’) and EAD (‘exposure at default’) which are provided in possible scenarios along with scenario weightings. Probability-weighted ECLs are determined by running each scenario through the relevant ECL model and multiplying it by the appropriate scenario weighting. As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. The Group and the Company considers these forecasts to be appropriately representative of its best estimate of the possible outcomes and the range of possible scenarios.