Annual Report 2019

121 Miramar Hotel and Investment Company, Limited Annual Report 2019 Notes to the Financial Statements 1 Significant accounting policies (Continued) (j) Leased assets (continued) (ii) As a lessor When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to the ownership of an underlying assets to the lessee. If this is not the case, the lease is classified as an operating lease. The rental income from operating leases is recognised in accordance with note 1(u)(i). (k) Credit losses and impairment of assets (i) Credit losses from financial instruments and lease receivables The Group recognises a loss allowance for expected credit losses (“ECLs”) on financial assets measured at amortised cost (including cash and cash equivalents, trade and other receivables, amounts due from associates and loans to associates, which are held for the collection of contractual cashflow which represent solely payments of principle and interest) and lease receivables. Other financial assets measured at fair value, including equity securities measured at FVPL, equity securities designated at FVOCI (non-recycling) and unlisted investment fund, are not subject to the ECL assessment. Measurement of ECLs ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material: – fixed-rate financial assets and trade and other receivables: effective interest rate determined at initial recognition or an approximation thereof; – lease receivables: discount rate used in the measurement of the lease receivable. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.