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CapitaMall Trust Annual Report 2013 170 Clarity
Notes to the
Financial Statements
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
3.7 Financial instruments (continued)
Convertible bonds
The Group has issued convertible bonds that comprise a liability for the principal and interest amount and a
derivative liability. The derivative liability is recognised at fair value at inception. The carrying amount of the
convertible bonds at initial recognition is the difference between the gross proceeds from the convertible
bonds issue and the fair value of the derivative liability. Any directly attributable transaction costs are
allocated to the convertible bonds and derivative liability in proportion to their initial carrying amounts.
Subsequent to initial recognition, the convertible bonds are measured at amortised cost using effective
interest method. The derivative liability is measured at fair value through profit or loss.
The Group has also issued convertible bonds that can be converted into Unitholders’ funds at the option
of the holder, where the number of units to be issued does not vary with changes in their fair value are
accounted for as compound financial instruments. The gross proceeds are allocated to the equity and
liability components, with the equity component being assigned the residual amount after deducting the
fair value of the liability component from the fair value of the compound financial instrument. Subsequent
to initial recognition, the liability component of convertible bonds is measured at amortised cost using the
effective interest method. The equity component of convertible bonds is not re-measured subsequent to
initial recognition.
3.8 Impairment
Non-derivative financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine
whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence
indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had
a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor,
restructuring of an amount due to the Group on terms that the Group would not consider otherwise,
indications that a debtor or issuer will enter bankruptcy. In addition, for an investment in an equity security,
a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
The Group considers evidence of impairment for loans and receivables at both a specific asset and collective
level. All individually significant loans and receivables are assessed for specific impairment. All individually
significant loans and receivables found not to be specifically impaired are then collectively assessed for any
impairment that has been incurred but not yet identified. Loans and receivables that are not individually
significant are collectively assessed for impairment by grouping together loans and receivables with similar
risk characteristics.
In assessing collective impairment, the Group uses historical trends of the probability of default, timing of
recoveries and the amount of loss incurred, adjusted for the Manager’s judgement as to whether current
economic and credit conditions are such that the actual losses are likely to be greater or less than suggested
by historical trends.