Annual Report 2020

NOTESTOTHE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2020 139 The United Laboratories International Holdings Limited Annual Report 2020 39. FINANCIAL INSTRUMENTS (Continued) Financial risk management objectives and policies (Continued) Credit risk and impairment assessment (Continued) Notes: (1) For the purposes of internal credit risk management, the Group uses repayment history or other relevant information to assess whether credit risk has increased significantly since initial recognition. At 31 December 2020, the balances of other receivables and refundable deposits (31 December 2019: the balances of other receivables, considerable receivables and refundable deposits) are not past due and based on the historical default rates of these balances are considered as low risk. (2) For trade receivables, the Group has applied the simplified approach in HKFRS 9 to measure the loss allowance at lifetime ECL. The Group uses provision matrix to calculate ECL for trade receivables. The provision rates are based on internal credit risk as groupings of various debtors that have similar loss patterns. The provision matrix is based on the Group’s historical default rates taking into consideration forward-looking information that is reasonable and supportable available without undue costs or effort. At every reporting date, the historical observed default rates are reassessed and changes in the forward-looking information are considered. The following ECL rates are about the exposure to credit risk for trade receivables which are assessed based on provision matrix taking into account the weighted average rate of various categories’ debtors at 31 December 2020 and 2019 within lifetime ECL (not credit-impaired). 2020 2019 Average Gross carrying Allowance Average Gross carrying Allowance loss rate amount amount loss rate amount amount RMB’000 RMB’000 RMB’000 RMB’000 Low risk 0.09% 567,041 503 0.08% 681,406 545 Normal risk 0.94% 672,495 6,349 0.92% 357,912 3,293 High risk 7.10% 180,914 12,845 9.55% 202,218 19,329 1,420,450 19,697 1,241,536 23,167 (3) After the assessment, credit risk of the consideration receivables and commercial bills receivables has been increased significantly since initial recognition. After considering various factors, including but not limited to the financial position of Evergrande Chengdu and the yield rate of the bonds issued by Evergrande Chengdu or its holding company, the Group transferred the 12m ECL of RMB8,821,000 to lifetime ECL and further provided ECL allowance of RMB71,278,000 during the year ended 31 December 2020, after the reversal of ECL of RMB7,596,000 due to the settlement during the year. At 31 December 2020, the management of the Group considered that the ECL of consideration receivables and commercial bills receivables are sufficient. During the current year, an impairment loss of RMB19,697,000 (2019: RMB23,167,000) has been recognised and amount of RMB23,167,000 (2019: RMB25,518,000) has been reversed for trade receivables, based on the provision matrix.