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KUWAIT ENERGY plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2014
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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial assets (continued)
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.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When
a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries
of amounts previously written off are recognised in the consolidated statement of income. Changes in the carrying
amount of the allowance account are recognised in the consolidated statement of income.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or
it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If
the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control
the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it
may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial
asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the
proceeds received.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance
of the contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of
its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue
costs.
Trade payables
Trade payables are recognised initially at fair value, net of transaction costs incurred. Trade payables are
subsequently stated at amortised cost.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently
stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is
recognised in the consolidated statement of income over the period of the borrowings using the effective interest
method.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled
or they expire.