KUWAIT ENERGY plc GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2012
F-87
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial assets
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial
asset is under a contract whose terms require delivery of the financial asset within the timeframe established
by the market concerned, and are initially measured at fair value, plus transaction costs.
Financial assets are classified as “cash and cash equivalents”, “trade and other receivables” and “held to
maturity investment”. The classification depends on the nature and purpose of the financial assets and is
determined at the time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of
allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts (including all fees on 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 asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.
Cash and cash equivalents
Cash and cash equivalents in the consolidated statement of cash flows include cash, bank balances and short-
term deposits with an original maturity of three months or less.
Trade and other receivables
Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised
cost using the effective interest method, less any impairment. Interest income is recognised by applying the
effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Appropriate allowances for estimated irrecoverable amounts are recognised in the consolidated statement of
income when there is objective evidence that the asset is impaired.
Held to maturity investments
Bonds with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and
ability to hold to maturity are classified as held to maturity investment. Held to maturity investments are
measured at amortised cost using the effective interest method less any impairment, with revenue recognised
on an effective yield basis.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each consolidated balance sheet date. Financial
assets are impaired where there is objective evidence that, as a result of one or more events that occurred after
the initial recognition of the financial asset, the estimated future cash flows of the asset have been impacted.
For trade receivables, objective evidence of impairment could include: (i) significant financial difficulty of the
issuer or counterparty; or (ii) default or delinquency in interest or principal payments; or (iii) it becoming
probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired
individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment
for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in
the number of delayed payments in the portfolio past the average credit period of 60 days, as well as
observable changes in national or local economic conditions that correlate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment is the difference between the
asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial
asset’s original effective interest rate.
