122 C I M F I N A N C I A L S E R V I C E S L T D 3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. In the process of applying the Group’s accounting policies, management has made the following judgements and assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Existing circumstances and assumptions about future developments may change due to circumstances beyond the Group’s control and are reflected in the assumptions if and when they occur. Items with the most significant effect on the amounts recognised in the financial statements with substantial management judgement and/or estimates are collated below; (a) Going concern The Group’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt on the Group’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on a going concern basis. The going concern assessment is described in note 2.6. (b) Amalgamation of entities Effective 1 October 2020, Mauritian Eagle Leasing Company Ltd, Cim Agencies Ltd, Cim Management Services Ltd, Cim Shared Services Ltd and Cim Finance Ltd have been amalgamated with and into a single entity, CIM Financial Services Limited, (CFSL). The amalgamation meets the definition of a business combination under common control, hence scoped out IFRS 3 Business Combinations. In line with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, management has used its judgement in developing an accounting policy choice which reflect the substance of the transaction. Management has therefore applied the pooling of interests method to the amalgamation as it is more of a business re-organisation. The following steps were applied: • The assets and liabilities of the amalgamating entities are reflected at their carrying amounts with no adjustments made to reflect fair values. • No new assets or liabilities were recognised, at the date of the amalgamation that would otherwise be done under the acquisition method in compliance with IFRS 3. • No goodwill or gain on bargain purchase were recognised as a result of the amalgamation. (c) Fair value estimation The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e., an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimation is required in establishing fair values. (d) Effective Interest Rate (EIR) method The Group’s EIR methodology, recognises interest income using a rate of return that represents the best estimate of a constant rate of return over the expected behavioural life of loans and deposits and recognises the effect of potentially different interest rates charged at various stages and other characteristics of the product life cycle (including prepayments and penalty interest and charges). This estimation, by nature, requires an element of judgement regarding the expected behaviour and life-cycle of the instruments, as well expected changes to the Company’s base rate and other fee income/expense that are integral parts of the instrument. (e) Impairment of non-financial assets Assets are considered for impairment if there is a reason to believe that impairment may be necessary. Future cash flows expected to be generated by an asset or cash-generating assets are projected, taking into account market conditions and the expected useful lives of the assets. The present value of these cash flows, determined using an appropriate discount rate, is compared to the current net asset value and, if lower, the assets are impaired to the present value. The impairment loss is first allocated to goodwill and then to the other assets of a cash-generating unit. Explanatory Notes 30 SEPTEMBER 2021 E x p l a n a t o r y N o t e s
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