Page 250 - E-BOOK

4. Significant accounting policies

4.1 Income recognition

a) Interest income on loans purchased of receivables

Accounting policies adopted since 1 January 2020

The Company has recognised interest on loans purchased of receivables based on the

cost of the receivables, net of allowance for expected credit losses, using the credit-
adjusted effective interest rate and an accrual basis.

The credit-adjusted effective interest rate is calculated by discounting the estimated
future cash flows to be paid or received over the expected life of the financial asset to

derive the amortised cost of financial assets that are purchased or originated credit-
impaired financial assets. In estimating, the net expected cash inflows reference is made
to historical data on net cash inflows from related actual expenses in the past to develop

a model, based on the assumption that the net expected cash inflows and the expected
life of financial instruments with similar characteristics can be estimated reliably.

Annual Report 2020 In cases where the cost and accrued interest of an acquired non- performing loans

(NPLs) have been fully amortised, the Company still has the right to claim the payment
from debtor under the contract. When such payments are received from a debtor, the

Company recognises gain on loans purchased of receivables as an integral part of the
248 interest income. If a debtor’s assets were received as a result of an auction of collateral

or a transfer of assets for debt settlement, the transferred assets were recorded at the

bid price or the price agreed upon with the debtor and to be deducted from the principal

of loans purchased of receivables and accrued interest. If the value of the transferred
assets exceeded the outstanding loans purchased of receivables, the difference was

presented as revaluation of properties for sale so that the value of the asset recorded in
the financial statements did not exceed the cost of the loans purchased of receivables.
The income was recognised on the date of receipt of the transferred assets.

Accounting policies adopted before 1 January 2020

The Company recognised interest income on non-performing loans that were acquired
or transferred from other financial institutions when payment was received from the

debtors, with separation into two groups as follows: