Page 65 -

Notes to the Consolidated Financial Statements

31st March 2017

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.11 Impairment of financial assets carried at amortised cost (Continued)

Evidence of impairment may include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or delinquency in interest or principal payments,
the probability that they will enter bankruptcy or other financial reorganisation, and where
observable data indicate that there is a measurable decrease in the estimated future cash flows,
such as changes in arrears or economic conditions that correlate with defaults.

For loans and receivables category, the amount of the loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows (excluding future
credit losses that have not been incurred) discounted at the financial asset’s original effective
interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised
in the consolidated income statement. If a loan or held-to-maturity investment has a variable
interest rate, the discount rate for measuring any impairment loss is the current effective interest
rate determined under the contract. As a practical expedient, the group may measure impairment
on the basis of an instrument’s fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can
be related objectively to an event occurring after the impairment was recognised (such as an
improvement in the debtor’s credit rating), the reversal of the previously recognised impairment
loss is recognised in the consolidated income statement.

2.12 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when
there is a legally enforceable right to offset the recognised amounts and there is an intention
to settle on a net basis or realise the asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events and must be enforceable in the normal
course of business and in the event of default, insolvency or bankruptcy of the company or the
counterparty.

2.13 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the
weighted average method. The cost of finished goods and work in progress comprises design
costs, raw materials, direct labour, other direct costs and related production overheads (based
on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated
selling price in the ordinary course of business, less applicable variable selling expenses.

ALCO HOLDINGS LIMITED ANNUAL REPORT 2017 63