Page 198 - Pakistan Oilfields Limited - Annual Report 2021

NOTES TO AND FORMING

PART OF THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2021

c) Fair value through profit or loss (FVTPL)

Assets that do not meet the criteria for amortised cost or FVTOCI are measured at FVTPL. A gain or
loss on a debt investment that is subsequently measured at FVTPL is recognised in profit or loss and
presented net within other income in the period in which it arises.

Equity instruments

The Group subsequently measures all equity investments at fair value. Where the Group’s
management has elected to present fair value gains and losses on equity investments in OCI,
there is no subsequent reclassification of fair value gains and losses to profit or loss following the
derecognition of the investment. Dividends from such investments continue to be recognised in
profit or loss as other income when the Group’s right to receive payments is established.

Changes in the fair value of financial assets at FVTPL are recognised in statement of profit or loss.

4.22 Impairment of financial assets

The Group assesses on a historical as well as on a forward looking basis the expected credit losses
(ECL) as associated with its trade debts, deposits and other receivables and cash and bank balances
carried at amortised cost. The impairment methodology applied depends on whether there has been
a significant increase in credit risk. For trade debts, the Group applies IFRS 9 simplified approach to
measure the expected credit losses (loss allowance) which uses a life time expected loss allowance
while general 3-stage approach for deposits and other receivables and cash and bank balances i.e to
measure ECL through loss allowance at an amount equal to 12-month ECL if credit risk on a financial
instrument or a group of financial instruments has not increased significantly since initial recognition.
Following are financial instruments that are subject to the ECL model:

- Trade debts
- Deposits and other receivables
- Cash and bank balances
- Short term investments

(i) Simplified approach for trade debts

The Group recognises life time ECL on trade debts, using the simplified approach. The
measurement of ECL reflects:

- an unbiased and probability-weighted amount that is determined by evaluating a range
of possible outcomes;
- reasonable and supportable information that is available at the reporting date about past
events, current conditions and forecasts of future economic conditions.

Trade debts with individually significant balance are separately assessed for ECL measurement.
All other receivables are grouped and assessed collectively based on shared credit risk
characteristics and the days past due. The expected credit losses on these financial assets are
estimated based on the Group’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.

196 PAKISTAN OILFIELDS LIMITED