Entire Document - Chris Hani District Municipality

5.3.2 Financial Liabilities:
Financial liabilities at fair value are initially and subsequently measured at fair value. Other financial liabilities are
measured at amortised cost using the Effective Interest Rate Method.
5.4 Impairment of Financial Assets
Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at
each balance sheet date. Financial assets are impaired where there is objective evidence of impairment of Financial
Assets (such as the probability of insolvency or significant financial difficulties of the debtor). If there is such evidence
the recoverable amount is estimated and an impairment loss is recognised in accordance with IAS 39.
Initially Accounts Receivable are valued at fair value and subsequently carried at amortised cost using the effective
interest rate method. An estimate is made for doubtful debt based on past default experience of all outstanding
amounts at year-end. Bad debts are written off the year in which they are identified as irrecoverable. Amounts
receivable within 12 months from the date of reporting are classified as current.
A provision for impairment of trade receivables is established when there is objective evidence that the municipality
will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is
the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted
at the original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is reduced through the use of an allowance account.
When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognised in the Statement of Financial Performance.
With the exception of Available-for-Sale equity instruments, if, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively to an event occurring after the impairment was
recognised, the previously recognised impairment loss is reversed through the Statement of Financial Performance
to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what
the amortised cost would have been had the impairment not been recognised.
In respect of Available-for-Sale equity securities, impairment losses previously recognised through profit or loss are
not reversed through the Statement of Financial performance. Any increase in fair value subsequent to an impairment
loss is recognised directly in equity.
Consumer Debtors are stated at cost less a provision for impairment. The provision is made in accordance with IAS
39.64 whereby the recoverability of Consumer Debtors is assessed individually and then collectively after grouping
the assets in financial assets with similar credit risks characteristics. Government accounts are not provided for as
such accounts are regarded as receivable.
Loans and Receivables are non-derivative Financial Assets with fixed or determinable payments. They are included
in current assets, except for maturities greater than 12 months, which are classified as non-current assets. Loans
and receivables are recognised initially at cost which represents fair value. After initial recognition Financial Assets are
measured at amortised cost, using the Effective Interest Rate Method less a provision for impairment.
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