Annual Report 2019

NOTESTOTHE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2019 79 The United Laboratories International Holdings Limited Annual Report 2019 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial instruments (Continued) Financial assets (Continued) Impairment of financial assets (Continued) (iv) Measurement and recognition of ECL The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information. Estimation of ECL reflects an unbiased and probability-weighted amount that is determined with the respective risks of default occurring as the weights. Generally, the ECL is the difference between all contractual cash flows that are due to the Group in accordance with the contract and the cash flows that the Group expects to receive, discounted at the effective interest rate determined at initial recognition. 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 receivables which are not credit- impaired, are assessed as a separate group, while bills receivables, other receivables, pledged bank deposits, other pledged deposits and bank balances are each assessed individually); • 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. 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 and other receivables, where the corresponding adjustment is recognised through a loss allowance account.