Annual Report 2020

NOTESTOTHE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2020 67 The United Laboratories International Holdings Limited Annual Report 2020 3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.2 Significant accounting policies (Continued) Financial instruments (Continued) Financial assets (Continued) Classification and subsequent measurement of financial assets (Continued) (i) Amortised cost and interest income Interest income is recognised using the effective interest method for financial assets measured subsequently at amortised cost. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired (see below). For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit-impaired. (ii) Financial asset at FVTPL Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI or designated as FVTOCI are measured at FVTPL. Financial asset at FVTPL is measured at fair value at the end of each reporting period, with any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profit or loss excludes any dividend or interest earned on the financial asset and is included in the “other gains and losses” line item. Impairment of financial assets The Group performs impairment assessment under expected credit loss (“ECL”) model on financial assets (including trade and bills receivables, commercial bills receivables, other receivables and refundable deposits, pledged bank deposits, other pledged deposits and bank balances) which are subject to impairment assessment under HKFRS 9. The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition.