Yinson Annual Report 2021

230 YINSON HOLDINGS BERHAD SECTION 07 : ACCOUNTABILITY NOTES TO THE FINANCIAL STATEMENTS (CONT’D) For the financial year ended 31 January 2021 5. Critical accounting estimates and judgements (continued) (a) Critical judgement in determining the lease classification (continued) (ii) Finance leases - Group as lessor (continued) t %FUFSNJOBUJPO PG MFBTF UFSN DPOUJOVFE The lease term is reassessed if an option is actually exercised (or not exercised). The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment. t 1SPCBCJMJUZ PG FYFSDJTF PG QVSDIBTF PQUJPO 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. (b) 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. (c) Impairment of FPSOs, OSVs and tankers Each FPSO, OSV and tanker is deemed to be a single CGU as the Group manages each FPSO, OSV and tanker separately. The Group reviews these CGUs at each reporting date for impairment indicators in accordance with the accounting policy stated in Note 2.20. If there is an impairment indicator, the recoverable amount for the FPSO, OSV and tanker will be ascertained based on the higher of the fair value less costs of disposal and its value in use. For value in use calculations, the future cash flows are based on contracted cash flows and estimates of uncontracted cash flows for the useful lives of each FPSO, OSV and tanker discounted by an appropriate discount rate. The impairment testing for each CGU requires management's estimates and judgement to derive future cash flows based on key assumptions such as charter rates, utilisation levels and costs escalation based on historical trends amongst others. The discount rate used is based on industry average that varies over time.