TCS Group Holding PLC
Notes to the Consolidated Financial Statements – 31 December 2018
Significant Accounting Policies (Continued)
Financial assets – write-off.
Uncollectible assets are partly written-off against the related сredit loss
allowance usually after one year since they become overdue. The amount of uncollectible part of loan is
estimated on a loan portfolio basis taking into account defaulted loans recovery statistics. Gains or losses
on disposal of credit-impaired loans are recognized directly to the credit loss allowance line in the
consolidated statement of profit or loss and other comprehensive income in the period when sale occurred.
The Group writes-off financial assets that are mostly still subject to enforcement activity, however, there is
no reasonable expectation of recovery.
Repayments of written-off loans.
Recovery of amounts previously written-off as uncollectible are credited
directly to the credit loss allowance line in the consolidated statement of profit or loss and other
comprehensive income. Cash flows related to repayments of written-off loans are separately presented
within recoveries from written-off loan in the consolidated statement of cash flows.
Financial assets – derecognition.
The Group derecognises financial assets when (a) the assets are
redeemed or the rights to cash flows from the assets otherwise expired or (b) the Group has transferred
the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement
while (i) also transferring substantially all risks and rewards of ownership of the assets or (ii) neither
transferring nor retaining substantially all risks and rewards of ownership, but not retaining control. Control
is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated
third party without needing to impose restrictions on the sale.
Financial assets – modification.
The Group sometimes renegotiates or otherwise modifies the contractual
terms of the financial assets. The Group assesses whether the modification of contractual cash flows is
substantial considering, among other, the following factors: any new contractual terms that substantially
affect the risk profile of the asset, significant change in interest rate, change in the currency denomination,
new collateral or credit enhancement that significantly affects the credit risk associated with the asset, or a
significant extension of a loan when the borrower is not in financial difficulties.
If the modified terms are substantially different, the rights to cash flows from the original asset expire and
the Group derecognises the original financial asset and recognises a new asset at its fair value. The date
of renegotiation is considered to be the date of initial recognition for subsequent impairment calculation
purposes, including determining whether a SICR has occurred.
The Group also assesses whether the new loan or debt instrument meets the SPPI criterion. Any difference
between the carrying amount of the original asset derecognised and fair value of the new substantially
modified asset is recognised in profit or loss, unless the substance of the difference is attributed to a capital
transaction with owners.
In a situation where the renegotiation was driven by financial difficulties of the counterparty and inability to
make the originally agreed payments, the Group compares the original and revised expected cash flows to
assets whether the risks and rewards of the asset are substantially different as a result of the contractual
modification. If the risks and rewards do not change, the modified asset is not substantially different from
the original asset and the modification does not result in derecognition. The Group recalculates the gross
carrying amount by discounting the modified contractual cash flows by the original effective interest rate (or
credit-adjusted effective interest rate for POCI financial assets), and recognises a modification gain or loss
in profit or loss. Usually modifications of stage 3 loans do not result in derecognition since they do not
change the expected cash flows substantially and represent the way of collection of past due balances. If
the terms of the modified asset are not substantially different, the modification does not result in
Financial liabilities – measurement categories.
Financial liabilities are classified as subsequently
measured at AC, except for (i) financial liabilities at FVTPL: this classification is applied to derivatives,
financial liabilities held for trading (e.g. short positions in securities), contingent consideration recognised
by an acquirer in a business combination and other financial liabilities designated as such at initial
recognition and (ii) financial guarantee contracts and loan commitments.
Financial liabilities – derecognition.
Financial liabilities are derecognised when they are extinguished
(i.e. when the obligation specified in the contract is discharged, cancelled or expires).