Page 118 - DUT Annual Report 2020

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DURBAN UNIVERSITY OF TECHNOLOGY ANNUAL REPORT 2020
DURBAN UNIVERSITY OF TECHNOLOGY
BAN UNIVERSITY OF TECHNOLOGY
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020
1.
1.12
1.12.2.4 1.12.2.4.1
ACCOUNTING POLICIES (continued) Financial instruments (continued)
Impairment of financial assets under IFRS 9 Assets carried at amortised cost
The University recognises a loss allowance for expected credit losses (ECL) on financial assets that are measured at amortised cost. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.
The University recognises lifetime expected credit losses for receivables and prepayments. The expected credit losses on these financial assets are estimated using a provision matrix based on the University’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.
Measurement and recognition of expected credit losses
The University applies the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped together on shared risk characteristics and the days past due. The expected loss rates are based on the underlying make-up of the receivable, payment trends and history of the market, political and social conditions for each category.
The measurement of expected credit losses is a function of the probability of default i.e. the magnitude of the loss if there is a 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. Default can be defined by the University as a function of verifiable historical data adjusted for expected losses.
As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date, together with any additional amounts expected to be drawn down in the future by default date determined based on historical trend, the University’s understanding of the specific future financing needs of the debtors, and other relevant forward-looking information.
For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the University in accordance with the contract and all the cash flows that the University expects to receive, discounted at the original effective interest rate.
The University recognises an impairment gain or loss in net surplus or deficit for all financial assets with a corresponding adjustment to their carrying amount through a loss allowance account.
Write-off policy
The University writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the debt is over five years past due. Financial assets written off may still be subject to enforcement activities under the University’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in net surplus or deficit.
1.12.2.4.2