Page 42 - NZPM Annual Report 2020

NZPM GROUP LIMITED
Notes to the Consolidated Financial Statements for the year ended 31 March 2020

(i) Definition of default
The Group considers the following as constituting an event of default for internal credit risk management purposes as historical
experience indicates that financial assets that meet the following criteria are generally not recoverable:

• information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors,
including the Group, in full.

(ii) Write off policy
The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is
no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings,
or in the case of trade receivables, when the amounts are over one year past due, whichever occurs sooner. Financial assets written
off may still be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where
appropriate. Any recoveries made are recognised in profit or loss.

(iii) Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the
loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on
historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this
is represented by the assets’ gross carrying amount at the reporting date. For financial assets, the expected credit loss is estimated
as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows
that the Group expects to receive, discounted at the original effective interest rate. The Group recognises an impairment gain or
loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance
account.

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers
the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

Financial liabilities
All financial liabilities are measured subsequently at amortised cost using the effective interest method or at FVTPL.

Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration of an acquirer in a business
combination, (ii) held for trading or (iii) it is designated as at FVTPL.

Financial liabilities measured subsequently at amortised cost
Financial liabilities that are not designated as at FVTPL, are measured subsequently at amortised cost using the effective interest
method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments
(including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised
cost of a financial liability.

Foreign exchange gains and losses
For financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of each reporting
period, the foreign exchange gains and losses are determined based on the amortised cost of the instruments. These foreign
exchange gains and losses are recognised in the ‘other operating expenses’ line item in profit or loss for financial liabilities that are not
part of a designated hedging relationship. The fair value of financial liabilities denominated in a foreign currency is determined in that
foreign currency and translated at the spot rate at the end of the reporting period.

Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired.

Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate
risks, including foreign exchange forward contracts and interest rate swaps. Further details of derivative financial instruments are
disclosed in note 32.3.

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NZPM GROUP LIMITED ANNUAL REPORT 2020