Annual Report 2023

Notes to the Consolidated Financial Statements For the year ended 31 December 2023 114 CHINA MERCHANTS PORT HOLDINGS COMPANY LIMITED 2. MATERIAL ACCOUNTING POLICY INFORMATION (CONTINUED) 2.11 Impairment of financial assets and financial guarantee contracts (continued) Measurement and recognition of ECL (continued) For financial guarantee contracts, the Group is required to make payments only in the event of a default by the debtors in accordance with the terms of the instruments that are guaranteed. Accordingly, the ECL is the present value of the expected payments to reimburse the holders for a credit loss that it incurs less any amounts that the Group expects to receive from the holders, the debtors or any other parties. Where ECL is measured on a collective basis or cater for cases where evidence at the individual instrument level may not yet be available, the financial instruments are grouped on the following basis: ‧ Nature of financial instruments (i.e. the Group’s trade debtors and other debtors are assessed as a separate group. Amounts due from/advances to immediate holding company/fellow subsidiaries/associates/joint ventures, compensation receivable from Shantou Land Reserve Centre (“SLRC”) and dividend receivables are assessed for ECL on an individual basis); ‧ Past-due status; ‧ Nature, size and industry of debtors; and ‧ External credit ratings where available. The grouping is regularly reviewed by management to ensure the constituents of each group continue to share similar credit risk characteristics. Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on amortised cost of the financial asset. Except for financial guarantee contracts, the Group recognises an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount, with the exception of trade debtors where the corresponding adjustment is recognised through a loss allowance account. 2.12 Inventories Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined using the weighted average cost method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less all estimated costs of completion and costs necessary to make the sale.