Basic HTML Version
NOTES TO AND FORMING
PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2020
135
PAKISTANOILFIELDS LIMITED
Definition of default
The Company considers the following as constituting an event of default for internal
credit risk management purposes as historical experience indicates that receivables that
meet either of the following criteria are generally not recoverable.
-
when there is a breach of financial covenants by the counterparty; or
-
information developed internally or obtained from external sources indicates that the
debtor is unlikely to pay its creditors, including the Company, in full (without taking
into account any collaterals held by the Company).
Irrespective of the above analysis, in case of trade debts, the Company considers that
default has occurred when the debt is more than 365 days past due, unless the Company
has reasonable and supportable information to demonstrate that a more lagging default
criterion is more appropriate.
Credit - impaired financial assets
A financial asset is credit-impaired when one or more events that have a detrimental
impact on the estimated future cash flows of that financial asset have occurred. Evidence
that a financial asset is credit-impaired includes observable data about the following
events:
-
significant financial difficulty of the issuer or the borrower;
-
a breach of contract, such as a default or past due event;
-
the lender(s) of the borrower, for economic or contractual reasons relating to the
borrower’s financial difficulty, having granted to the borrower a concession(s) that
the lender(s) would not otherwise consider;
-
it is becoming probable that the borrower will enter bankruptcy or other financial
reorganisation; or
-
the disappearance of an active market for that financial asset because of financial
difficulties.
(ii)
Simplified approach for trade debts
The Company recognises lifetime ECL on trade debts, using the simplified approach. The
measurement of ECL reflects:
-
an unbiased and probability-weighted amount that is determined by evaluating a
range of possible outcomes;
-
reasonable and supportable information that is available at the reporting date about
past events, current conditions and forecasts of future economic conditions.
Trade debts with individually significant balance are separately assessed for ECL
measurement. All other receivables are grouped and assessed collectively based on
shared credit risk characteristics and the days past due. The expected credit losses on these
financial assets are estimated based on the Company’s historical credit loss experience,
adjusted for factors that are specific to the debtors, general economic conditions and
an assessment of both the current as well as the forecast direction of conditions at the
reporting date, including time value of money where appropriate.