ANNUAL%20REPORT%202015%20eng

Notes to Consolidated Financial Statements
30 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL
INSTRUMENTS (Continued)
(b)
Credit risk (Continued)
VAT receivables include amounts that have been accumulated to date in various subsidiaries.
According to the prevailing tax rules and regulations in Mongolia, a taxpayer may offset future taxes
and royalties payable to the Government against VAT amounts receivable from the Government of
Mongolia. In July 2009, the Mongolian Tax Laws were amended to preclude producers and exporters
of unfinished mineral products from claiming back VAT and any VAT amounts impacted is prospective
from the effective date of the law on 16 August 2009. On 10 November 2010, the Government defined
finished mineral products as products which qualify for claiming back VAT. During the year ended 31
December 2015, the Group offset current income tax payable, air pollution fee, royalty tax payable and
payables due to suppliers owing of USD244,000, USD1,271,000, USD4,162,000 and USD22,349,000,
respectively, against its VAT receivable balance. Based on currently available information, the Group
anticipates full recoverability of amounts due on account primarily relating to finished mineral products
at 31 December 2015. Verification by the Mongolian Government Taxation Authority of the collectability
of the funds is conducted on a regular basis and any outstanding VAT receivable amounts at 31
December 2015 will be available to the Group to offset future taxes and royalty tax or will be refunded
by the Government of Mongolia Taxation Authority.
Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade and
other receivables are set out in Note 21.
(c)
Foreign currency exchange risk
The Group is exposed to currency risk primarily through sales, purchases and borrowings which
give rise to receivables, payables, borrowings and cash balances that are denominated in a foreign
currency, i.e. a currency other than the functional currency of the operations to which the transactions
relate. The functional currency of the Group’s Mongolian entities is MNT and of the Group’s overseas
entities is USD. The currencies giving rise to this risk are primarily RMB, USD and HKD.
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Annual Report 2015