| CIM FINANCE. INTEGRATED REPORT 2022 114 EXPLANATORY NOTES 30 SEPTEMBER 2022 2. A CCOUNTING POLICIES (CONT’D) 2.7 Significant accounting policies (Cont’d) (e) Recognition of income (Cont’d) (iii) Income related to factoring activities The Group and the Company provide factoring services to its customers and receive fees at a percentage for each transaction agreedwith the counterparties. Factoring fees can bewith or without recourse. Factoring of assets with full recourse are ones where the risks and rewards of collecting the amount due fromthe receivables’ (end customer) will remainwith the transferor. As such the Group and the Company will bear no credit risk towards the end customer since the transferor has given full guarantee to compensate CIM for all credit losses that are likely to occur in relation to the amount disbursed. However, CIM bears credit risk towards the transferor and this is treated separately and accounted as a loan receivable from the transferor. In a non-recourse factoring arrangement, the transferor does not provide any guarantee about the total receivables’s performance. As such, the Group and the Company obtain credit insurance on the portfolio of receivables prior to factoring them. On factoring, the Group and the Company become the beneficiary of the credit insurance. The Group and the Company do not disburse any amount higher than the credit insurance received. Furthermore, the Group and the Company take credit insurance and then charge those costs to the transferor within its commission receivables. These costs form part of the commission charge to the transferor. The perfomance obligation is satisfied at the acceptance of the invoice for which it provides the factoring service and the reveniue is recognised at this point. iv) Interest and similar income For all financial instruments measured at amortised cost, interest income is recorded using the effective interest rate (EIR). The EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. Income that the Group and the Company consider to be an integral part of these financial instruments are recognised in the EIR. Earnings from finance leases are recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return. Income or discounts received from merchants on financing of credit agreements, commitment fees and signing fees are initially recognised and presented in net investment in leases and other credit agreements, other liabilities in the statement of financial position. The release to profit or loss is recognised in interest income line in the statement of profit or loss. (v) Rental income Rental income is recognised in accordance with the substance of the relevant agreement. Rental income from operating leases net of value added taxes is recognised on a straight line basis over the lease term. (vi) Penalty and late payment fees Penalty and late payment fees on card activities are recognised over the period towhich they accrue. Also included in penalty and late payment fees, contingent rent arising on leases, hire purchase and other credit agreement which are recognised as income in the period they are incurred. (vii) Dividend Income Dividend Income is recognised when the Group’s and the Company’s right to receive the payment is established. (viii) Management and administration fees Revenue frommanagement and administration services are recognised over time as the services are received and consumed simultaneously, measured at the transaction price as per agreements.
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