LENMED AIR 2019.pdf

2.2 Financial instruments continued 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 guarantee contracts, the exposure includes the amount drawn down as 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 Group’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 Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate. If the Group has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Group measures the loss allowance at an amount equal to 12-month ECL at the current reporting date, except for assets for which simplified approach was used. 2.3 Residual values and useful lives of items of property, plant and equipment Buildings The Group’s estimate of the useful life of buildings is 50 years due to the specialised nature of the buildings. The residual value of buildings is determined by management taking into account significant judgements applied to various factors and external information available. Plant and equipment Due to the specialised nature of the Group’s plant and equipment the residual value attached to these assets has been estimated to be nil with useful lives of between 3 and 20 years. Motor vehicles The entity has a policy of utilising all motor vehicles for a period of 5 years with the residual value estimated to be nil. This period is based on past experience of usage of the Group’s motor vehicles. 2.4 Goodwill Goodwill is tested for impairment at each statement of financial position date. The recoverable amounts of cash generating units have been estimated based on value in use calculations. Value in use calculations have been based on a subjective pre tax discount rate of 15%. Based on these calculations, no impairment loss is recognised. Overall an increase in the post tax WACC of 2.6% or a reduction in perpetuity cash flows of R5 million per annum would result in the recoverable amount and therefore the carrying amount being reduced to nil. Refer to note 10 for further information. 2.5 Share-based payments The fair value is calculated using the Black Scholes option pricing model. Please refer to note 22 for assumptions used in the model. 2.6 Control over subsidiaries An assessment of control was performed by the Group based on whether the Group has the practical ability to direct the relevant activities unilaterally. In making the judgement, the relative size and dispersion of other vote holders, potential voting rights held by them or others, rights from other contractual arrangements were considered. After the assessment, the Group concluded that they had a dominant voting interest to direct the relevant activities of the subsidiaries and it would take a number of vote holders to outvote the Group, therefore the Group has control over the subsidiaries. 2.7 Significant influence over an associate Renal Care Holdings (Pty) Ltd is an associate of the Group as described in note 12. Significant influence arises from the Group’s 40% interest. Lenasia Renal Centre (Pty) Ltd is an associate of the Group as described in note 12. Significant influence arises from the Group’s 30% interest. 2.8 Fair value measurements and valuation processes The Group measures some of its assets and liabilities at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value. Accounting policies continued CONSOLIDATED ANNUAL FINANCIAL STATEMENTS 98