185 Annual Report 2024 31. Financial risk management objectives and policies (cont’d) Credit risk (cont’d) The Group has determined the default event on a financial asset to be when the counterparty fails to make contractual payments, 365 days past invoice date, which are derived based on the Group’s historical information. The Group categorises a loan or receivable for potential write-off when a debtor fails to make contractual payments more than 365 days past invoice date. Financial assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the Group. Where loans and receivables have been written off, the company continues to engage enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognised in profit or loss. The following are credit risk management practices and quantitative and qualitative information about amounts arising from expected credit losses for each class of financial assets. (a) Debt securities at amortised cost The Group uses three categories of internal credit risk ratings for debt instruments and loans which reflect their credit risk and how the loss provision is determined for each of those categories. These internal credit risk ratings are determined through incorporating both qualitative and quantitative information that builds on information specific to the counterparty and other external information that could affect the counterparty’s behaviour. The Group compute expected credit loss for this group of financial assets using the probability of default approach. In calculating the expected credit loss rates, the Group considers implied probability of default and historical loss rates for each category of counterparty, and adjusts for forward looking macroeconomic data. The Group uses the 12-month expected credit loss (“ECL”) model to recognise the ECL provision for trade receivables, finance lease receivables and contract assets, and uses the lifetime ECL model to recognise ECL provision for loans and, interest and/or principal repayments that are 365 days past invoice date. There are no significant changes to estimation techniques or assumptions made during the reporting period. (b) Trade receivables, finance lease receivables and contract assets The Group provides for lifetime expected credit losses for all trade receivables, finance lease receivables and contract assets using a provision matrix. The provision rates are determined based on the Group’s historical observed default rates analysed in accordance to days past due by grouping of customers based on geographical region. The loss allowance provision as at 31 December 2024 is determined as follows, the expected credit losses incorporate forward looking information such as forecast of economic conditions where the gross domestic product will deteriorate over the next year, leading to an increased number of defaults. Information regarding loss allowance movement of trade receivables and contract assets are disclosed in Note 11 and Note 9. During the financial year, the Group wrote-off $2,536,000 (2023: $181,000) of trade receivables as the Group does not expect to receive future cash flows from and there are no recoveries from collection of cash flows previously written off. NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December 2024
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