Integrated Report 2020

INTEGRATED REPORT 2020 CIM FINANCIAL SERVICES LTD Explanatory Notes 30 SEPTEMBER 2020 3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT’D) Deferred tax assets Deferred tax assets are recognised in respect of deductible temporary differences to the extent that it is probable that future taxable profit will be available which these temporary differences can be utilised. Judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable profits, together with future tax-planning strategies. Asset lives and residual values Equipment are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In reassessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. Consideration is also given to the extent of current profits and losses on the disposal of similar assets. Classification of lease The extent to which risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee determined the classification of the lease. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. The major considerations that the Group takes into account in determining the classification of a lease as a finance lease include: • the transfer of ownership to the lessee at the end of the lease, • the option to purchase the asset at a price significantly lower than the fair value, • the present value of minimum lease payment is almost the fair value of the leased asset, • and the lease term covers the major part of the economic life of the asset. The Group distinguishes other credit agreement from finance lease based on the nature of the underlying asset being financed, the terms of the financing arrangements and the timing of transfer of title of the asset. Limitation of sensitivity analysis Sensitivity analysis in respect of market risk demonstrates the effect of a change in a key assumption while other assumptions remain unchanged. In reality, there is correlation between the assumptions and other factors. It should be noted that these sensitivities are non-linear and larger or smaller impacts should not be interpolated or extrapolated from these results. Sensitivity analysis does not take into consideration that the Group’s assets and liabilities are managed. Other limitations include the use of hypothetical market movements to demonstrate potential risk that only represent the Group’s view of possible near-term market changes that cannot be predicted with any certainty. 97