Credit Union Annual Report 2021 V2 - Flipbook - Page 48
THE CAYMAN ISLANDS CIVIL SERVICE ASSOCIATION (CICSA)
CO-OPERATIVE CREDIT UNION LIMITED
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 2021
2.4 Summary of accounting policies (continued)
Financial assets and liabilities
Debt instruments are those that contain contractual obligations to pay the instrument holder certain cash flows. Cash,
fixed deposits, mortgages and personal loans, and receivables are classified as debt instruments. The classification and
subsequent measurement of debt instruments depend on the assessment of business model and characteristics of cash
flow.
Business model reflects the objective of holding different assets. That is, whether the Credit Union’s objective is to collect
the contractual cash flows from the assets or is to collect the cash flows arising from the sale of the assets, or both. The
cash flow test considers whether interest includes only consideration for the time value of money, credit risk, other basic
lending risks and a profit margin that is consistent with a basic lending arrangement.
Based on these factors, the Credit Union classifies and measures its debt instruments at amortized cost, as they are held
for collection of contractual cash flows where those cash flows represent solely payments of principal and interest. The
carrying amount of these assets is adjusted by any expected credit loss allowance recognized and measured.
Equity instruments are those that do not contain contractual obligations to pay the instrument holder and that evidence
residual interests in the issuer’s net assets. The Credit Union measures all equity investments at fair value through profit
or loss. Impairment losses are not reported separately from other changes in fair value. Dividends, when representing a
return on such investments, continue to be recognized in profit or loss as other income when the Credit Union’s right to
receive payments is established.
All loans are originated by the Credit Union and are initially recognised at fair value, which is the cash consideration to
originate the loan, and then subsequently measured at amortised cost using the effective interest rate method less, where
applicable, a provision for loan losses.
iv. Reclassification of financial assets and liabilities
The Credit Union does not reclassify its financial assets subsequent to their initial recognition, apart from the
exceptional circumstances in which the Credit Union acquires, disposes of, or terminates a business line. Financial
liabilities are never reclassified.
v. Derecognition of financial assets and liabilities
Derecognition due to substantial modification of terms and conditions
Derecognition due to substantial modification of terms and conditions Credit Union derecognises a financial asset, such
as a loan to a customer, when the terms and conditions have been renegotiated to the extent that, substantially, it becomes
a new loan, with the difference recognised as a derecognition gain or loss, to the extent that an impairment loss has not
already been recorded. The newly recognised loans are classified as Stage 1 for ECL measurement purposes, unless the
new loan is deemed to be purchased or originated credit impaired (POCI).
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