ELIN Leasing Plc. Report of the Board of Directors and Audited financial statements. as at 31 December 2016 and for the year then ended

Transcription

1 Report of the Board of Directors and Audited financial statements

2 CONTENTS Pages REPORT OF THE BOARD OF DIRECTORS 1-3 AUDITED FINANCIAL STATEMENTS Independent auditor s report 4-5 Statement of financial position 6 Statement of comprehensive income 7 Statement of changes in equity 8 Statement of cash flows 9 Notes to the financial statements 10-48

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4 REPORT OF THE BOARD OF DIRECTORS (continued) EVENTS AFTER THE END OF THE REPORTING PERIOD All significant events occurring between the end of the reporting period and the date of authorization of these financial statements which require adjustments or disclosures have been properly reflected in the financial statements. AUDITOR Ernst & Young (Cambodia) Ltd. is the auditor of the Company. DIRECTORS INTEREST The directors directly holding shares of the Company are as follows: US$ KHR 000 US$ KHR 000 Mr. Leang Phuong Bunnarath 90, ,330 45, ,250 Mr. Chheng Makara 81, ,997 40, ,904 Mr Ty Chandy 27, ,613 27, , , , , ,930 DIRECTORS BENEFITS During and at the end of the year, no arrangement existed, to which the Company was a party, with the object of enabling directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other corporate body. No director of the Company has received or become entitled to receive any benefit by reason of a contract made by the Company or with a firm which the director is a member, or with a company which the director has a material financial interest. STATEMENT OF THE BOARD OF DIRECTORS RESPONSIBILITY IN RESPECT OF THE FINANCIAL STATEMENTS The Board of Directors is responsible for ensuring that the financial statements give a true and fair view of the financial position of the Company as at 31 December 2016, and its financial performance and its cash flows for the year then ended. The Board of Directors oversees the preparation of these financial statements by management who is required to: Adopt appropriate accounting policies which are supported by reasonable and prudent judgments and estimates and then apply them consistently; Comply with the disclosure requirements of Cambodian International Financial Reporting Standards ( CIFRSs ) or, if there has been any departure in the interest of fair presentation, ensure this has been appropriately disclosed, explained and quantified in the financial statements; Maintain adequate accounting records and an effective system of internal controls; Prepare the financial statements on a going concern basis unless it is inappropriate to assume that the Company will continue operations in the foreseeable future; and Set overall policies for the Company, ratify all decisions and actions by management that have a material effect on the operations and performance of the Company, and ensure they have been properly reflected in the financial statements. 2

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8 STATEMENT OF FINANCIAL POSITION as at 31 December December December 2015 Notes US$ KHR 000 US$ KHR 000 (Note 2.1.3) (Note 2.1.3) (As restated Note 20) ASSETS Cash on hand and in bank 4 11,874 47,935 4,993 20,222 Balances with the National Bank of Cambodia 5 192, ,233 20,575 83,329 Loans and receivables 6 903,009 3,645, ,975 2,595,949 Property and equipment 7 22,640 91,398 9,109 36,892 Computer software 8 10,416 42,049 13,573 54,971 Other assets 9 15,054 60,773 14,281 57,838 TOTAL ASSETS 1,155,768 4,665,835 1,140,714 2,849,201 LIABILITIES AND EQUITY Liabilities Borrowings ,306 2,257, ,500 1,326,375 Accruals and other payables 11 21,397 86,380 37, ,670 Income tax payable 15 1,204 4, ,313 Deferred tax liability Total liabilities 581,964 2,349, ,273 1,479,358 Equity Share capital ,000 2,369, ,500 1,670,690 Accumulated losses (10,196) (41,837) (73,267) (297,464) Cumulative exchange differences - (11,549) - (3,383) Total equity 573,804 2,316, ,233 1,369,843 TOTAL LIABILITIES AND EQUITY 1,155,768 4,665,835 21,397 2,849,201 The attached notes 1 to 22 form part of these financial statements. 6

9 STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2016 For the period from For the year ended 31 December February 2015 to 31 December 2015 Notes US$ KHR 000 US$ KHR 000 (Note 2.1.3) (Note 2.1.3) (As restated Note 20) Operating income Finance income 6 422,153 1,710, , ,729 Interest expense 10 (50,173) (203,351) (39,718) (161,256) Net interest income 371,980 1,507, , ,473 Other income 8,467 34,317 3,679 14,937 Total operating income 380,447 1,541, , ,410 Provision for credit losses 6 (1,921) (7,786) (3,302) (13,407) General and administrative expenses 14 (310,343) (1,257,820) (221,258) (898,306) Income (loss) before income tax 68, ,346 (71,257) (289,303) Income tax expense 15 (5,112) (20,719) (2,010) (8,161) Net income (loss) for the year/period 63, ,627 (292,515) (297,464) Exchange difference on translation - (8,166) - (3,383) Total comprehensive income (loss) for the year/period 63, ,461 (294,525) (300,847) The attached notes 1 to 22 form part of these financial statements. 7

10 STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2016 Paid-up capital Accumulated losses Cumulative exchange differences Total US$ KHR' 000 US$ KHR' 000 KHR' 000 US$ KHR 000 (Note 2.1.3) (Note 2.1.3) (Note 2.1.3) (Note 2.1.3) As at 1 January 2016 (as restated Note 20) 411,500 1,670,690 (73,267) (297,464) (3,383) 338,233 1,369,843 Issuance of shares 172, , , ,143 Net income for the year , ,627-63, ,627 Exchange differences on translation (8,166) - (8,166) As at 31 December ,000 2,369,833 (10,196) (41,837) (11,549) 573,804 2,316,447 As at 17 February Issuance of shares 411,500 1,670, ,500 1,670,690 Net loss for the period - - (73,267) (297,464) - (73,267) (297,464) Exchange differences on translation (3,383) - (3,383) As at 31 December 2015 (as restated Note 20) 411,500 1,670,690 (73,267) (297,464) (3,383) 338,233 1,369,843 The attached notes 1 to 22 form part of these financial statements. 8

11 STATEMENT OF CASH FLOWS for the year ended 31 December 2016 For the period from For the year ended 31 December February 2015 to 31 December 2015 Notes US$ KHR 000 US$ KHR 000 (Note 2.1.3) (Note 2.1.3) (As restated Note 20) OPERATING ACTIVITIES Income (loss) before income tax 68, ,346 (71,257) (289,303) Depreciation and amortization 7, 8 10,683 43,298 13,835 56,170 Working capital changes: Loans and receivables (262,034) (1,062,024) (640,975) (2,602,359) Other assets (773) (3,133) (14,281) (57,981) Accruals and other payables (16,052) (65,059) 37, ,043 (199,993) (810,572) (675,229) (2,741,430) Income tax paid 15 (4,175) (16,921) (1,686) (6,845) Net cash used in operating activities (204,168) (827,493) (676,915) (2,748,275) INVESTING ACTIVITIES Capital guarantee deposit 5 (8,625) (34,957) (20,575) (83,535) Acquisition of: Property and equipment 7 (21,057) (85,344) (12,754) (51,781) Computer software (23,763) (96,478) Cash used in investing activities (29,682) (120,301) (57,092) (231,794) FINANCING ACTIVITIES Capital contribution , , ,500 1,670,690 Borrowings made ,806 3,938, ,500 2,750,650 Repayments made 10 (740,000) (2,999,220) (350,000) (1,421,000) Net cash from financing activities 404,306 1,638, ,000 3,000,340 Net increase in cash and cash equivalents during the year/period 170, ,859 4,993 20,271 Cash and cash equivalents at beginning of the year/period 4,993 20, Exchange differences on translation - (2,794) - (49) Cash and cash equivalents at end of the year/period 4 175, ,287 4,993 20,222 The attached notes 1 to 22 form part of these financial statements. 9

12 NOTES TO THE FINANCIAL STATEMENTS 1. CORPORATE INFORMATION ELIN Leasing Plc. ( the Company ) is a public limited company operating under License No. Co KH/2014 issued by the Ministry of Commerce ( MoC ) on 8 December On 17 February 2015, the Company obtained its license from the National Bank of Cambodia ( NBC ) to carry out financial leasing business. The principal activity of the Company is to carry out finance leasing business and any other forms of financing operation permitted by the NBC. The Company s registered office address is at No. 186 Ekareach Street, Phum 2, Sangkat 2, KrongPreah Sihanouk, Preah Sihanouk Province, Kingdom of Cambodia. The financial statements were authorized for issue by the Board of Directors on 28 April SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The financial statements of the Company have been prepared in accordance with Cambodian International Financial Reporting Standards ( CIFRSs ). The Company s financial statements as at 31 December 2015 and for the period from 17 February 2015 to 31 December 2015 have been prepared in accordance with Cambodian Accounting Standards (CAS) and relevant regulations and guidelines issued by the NBC. The financial statements represent the first financial statements of the Company prepared in accordance with CIFRSs. Refer to Note 20 for information on how the Company adopted CIFRSs. The financial statements, expressed in United States dollar ( US$ ), have been prepared on a historical cost basis. The Company maintains its accounting records and presents its financial statements in United States dollar ( US$ ). The amounts are rounded to the nearest US$ unless otherwise indicated Fiscal year The Company s fiscal year starts on 1 January and ends on 31 December Presentation currency and foreign exchange The national currency of Cambodia is the Khmer Riel ( KHR ). However, as the Company transacts its business and maintains its accounting records primarily in US$, management has determined the US$ to be the Company s currency for measurement and presentation purposes as it reflects the economic substance of the underlying events and circumstances of the Company. Transactions in currencies other than US$ are translated into US$ at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in currencies other than US$ which are outstanding at the reporting date are translated into US$ at the rate of exchange ruling at that date. Exchange differences arising on translation are recognized in profit or loss Translation of US$ into KHR The translation of the US$ amounts into thousands KHR ( KHR 000 ) is presented in the financial statements to comply with the new Law on Corporate Accounts, their Audit and the Accounting Profession and the relevant CIFRS using the closing and average rates for the year then ended, as announced by the General Department of Taxation ( GDT ). 10

13 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) Translation of US$ into KHR (continued) Assets and liabilities are translated at the closing rate ruling at each reporting date, whereas income and expense items are translated at the average rate for the year then ended. All resulting exchange differences are recognized in other comprehensive income. Such translation should not be construed as a representation that the US$ amounts represent, or have been or could be, converted into KHR at that or any other rate. The financial statements are presented in KHR based on applicable exchange rates per US$1 as follows: Closing rate 4,037 4,050 Average rate 4,053 4, Summary of significant accounting policies Financial instruments Date of recognition All financial assets and liabilities are initially recognized when it becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the trade date, which is the date the Company commits to purchase or sell the asset. Deposits and receivables are recognized when cash is advanced or when the earning process is completed. Initial measurement of financial instruments All financial instruments are measured initially at fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss ( FVPL ). Financial assets are classified as financial assets at FVPL, loans and receivables, held-to-maturity ( HTM ) investments, and available-for-sale ( AFS ) financial assets. Financial liabilities are classified as financial liabilities at FVPL and loans and borrowings. The classification of financial instruments at initial recognition depends on their purpose and characteristics and the management s intention in acquiring them. The Company has no financial assets and liabilities at FVPL and HTM investments. Determination of fair value The Company measures financial instruments at fair value at each statement of financial position date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible to by the Company. 11

14 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Financial instruments (continued) Determination of fair value (continued) The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognized in the statement of financial condition on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Day 1 difference Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from an observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 difference ) in the statement of comprehensive income in Trading and securities gains - net, unless it qualifies for recognition as some other type of asset. In cases where use is made of unobservable data, the difference between the transaction price and model value is only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the Day 1 difference amount. Available-for-sale equity investments AFS equity investments are non-derivative financial assets which are designated as such and are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. After initial measurement, AFS equity investments are subsequently measured at fair value. Any unrealized gains and losses arising from the fair valuation of AFS equity investments are reported as Net unrealized loss on AFS equity investments under other comprehensive income ( OCI ) and in the statement of changes in equity until the investment is derecognized or is determined to be impaired at which the cumulative gain or loss previously reported in equity is included in profit or loss. AFS equity investments are classified as current if they are expected to be realized within 12 months from the end of the reporting date. Otherwise, these are classified as non-current assets. 12

15 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Financial instruments (continued) Loans and receivables These are financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets at FVPL, designated as AFS financial assets or HTM investments. After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest rate ( EIR ) method, less any allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortization is included in the interest income in profit or loss. Any losses arising from impairment are recognized in provision for impairment losses in profit or loss. The Company s loans and receivables comprise cash on hand and in bank, current accounts with NBC, hire purchase and lease receivables, employee receivables, accrued interest receivable on employee loans and other receivables. Loans and borrowings After initial recognition, loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortization in included as finance costs in profit or loss. Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Impairment of financial assets The Company assesses at each reporting date, whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. 13

16 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Financial instruments (continued) Loans and receivables For loans and receivables, the Company first assesses whether objective evidence of impairment exists. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The present value of the estimated future cash flows is discounted at the financial asset s original EIR. The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognized in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to Provision for credit and impairment losses. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continuous to be, recognized are not included in a collective assessment of impairment. Assets individually assessed for impairment for which no impairment loss was recognized are also collectively assessed for impairment.for the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics as industry, past due status and term. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period in which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. AFS equity investments For AFS equity investments, the Company assesses at each reporting date whether there is an objective evidence that a financial asset or group of financial assets is impaired. In the case of equity investments classified as AFS investments, this would include a significant or prolonged decline in the fair value of the investments below its cost. Significant is evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in OCI - is removed from OCI and recognized in profit or loss. Impairment losses on equity investments are not reversed through profit or loss. Increases in their fair value after impairment are recognized directly in OCI. 14

17 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Financial instruments (continued) Cash Derecognition of financial assets and liabilities Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of financial assets) is derecognized where: The rights to receive cash flows from the asset have expired; or The Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or The Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the risks and rewards of the asset but has transferred the control of the asset. Where the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay. Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss. Cash includes cash on hand and in banks held as current accounts Capital guarantee deposit with the National Bank of Cambodia Capital guarantee deposit is maintained with the NBC in compliance with the Cambodian Law on Banking and Financial Institutions at defined percentage of minimum share capital Loans and receivables Loans and receivables are stated in the statement of financial position at the amount of principal less any amounts written off and allowance for losses on loans and receivables. Loans and receivables are written off when there is no realistic prospect of recovery. Recoveries of loans and receivables previously written off, or provided for, decrease the amount of the provision for losses on loans and receivables in the income statement Property and equipment Items of property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Where an item of property and equipment comprises major components having different useful lives, the components are accounted for as separate items of property and equipment. 15

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Property and equipment (continued) Depreciation is calculated to write off the cost of items of property and equipment less the estimated residual value on a straight-line method over their respective estimated useful lives, as follows: No. of years Leasehold improvements 5 Office furniture, fixtures and equipment 2-4 Motor vehicles 4 Computer and IT equipment 2 Subsequent expenditure relating to an item of property and equipment that has already been recognized is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Company. All other subsequent expenditure is recognized as an expense in the period in which it is incurred. Gains or losses arising from the retirement or disposal of an item of property and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the assets and are recognized in income statement on the date of retirement or disposal. Fully depreciated property and equipment are retained in the financial statements until they are disposed of or written off. The carrying amounts of property and equipment are reviewed for impairment when there is an indication that the assets might be impaired. Impairment is measured by comparing the carrying values of the assets with their recoverable amounts. An impairment loss is charged to the income statement immediately. Reversal of impairment losses recognized in prior years is recorded where there is an indication that the impairment losses recognized for the asset no longer exist or have decreased. The reversal is recognized to the extent of the carrying amount of the asset that would have been determined (net of amortization and depreciation) had no impairment loss been recognized. The reversal is recognized in the income statement immediately. The residual values, useful lives and methods of depreciation of property and equipment are reviewed at each financial year and adjusted prospectively, if appropriate Intangible assets Computer software is stated at cost less accumulated amortization. The cost of an intangible asset comprises its purchase price and any directly attributable costs of preparing the intangible asset for its intended use. Expenditures for additions or improvements are added to the carrying amount of the assets and other expenditures are charged to the income statement as incurred. When computer software is sold or retired, the cost and accumulated amortization are removed from the statement of financial position and any gain or loss resulting from its disposal is included in the income statement. Amortization of computer software is calculated on a straight-line method over an estimated useful life of 5 years. 16

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Other assets Other assets include prepayments which are carried at estimated realizable values Related parties Parties are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions, or vice-versa, or where the Company and the party are subject to common control or significant influence. Related parties may be individuals or corporate entities and include close family members of any individual considered to be a related party Liabilities Loans and borrowings from related parties are stated at placement values. Other liabilities are stated at cost which is the fair value of the consideration expected to be paid in the future for goods and services received Provisions Provisions are recognized when the Company has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of the provision is the present value of the expenditure expected to be required to settle the obligation Revenue recognition Revenue is recognized to the extent that it is probable that economic benefits associated with the transaction will flow to the Company and the amount of the revenue can be reliably measured regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined term of payment and excluding taxes and duty. The Company assesses its revenue arrangements against specific critieria to determine if it is acting as principal or agent. The Company has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized: Lease and finance income Interest and finance fees on finance leases and loans and receivables financed with longterm maturities and the excess of the aggregate lease rentals plus the estimated residual value of the leased equipment over its cost are credited to unearned discount and amortized over the term of the note or lease using the effective interest method. Once the recorded value of a financial asset or group of similar financial assets has been reduced due to an impairment loss, finance income continues to be recognized using the original effective interest rate ( EIR ) applied to the new carrying amount. Interest income Interest on interest-bearing placements are recognized as the interest accrues, taking into account the effective yield of the assets Expense recognition Expenses are recognized when a decrease in future economic benefits related to a decrease in an asset or an increase in a liability has arisen that can be measured reliably. Expenses are recognized as incurred. 17

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date and requires and assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one or more of the following applies: a. There is a change in contractual terms, other than a renewal or extension of the arrangement; b. A renewal option is exercised or extension granted, unless that term of the renewal or extension was initially included in the lease term; c. There is a change in the determination of whether fulfillment is dependent on a specified asset; or d. There is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gives rise to the reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or extension period for scenario (b). Company as a lessor Leases where the Group does not transfer substantially all of the risk and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.. Company as a lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the assets are classified as operating leases. Operating lease payments are recognized as an expense in income statement on a straight-line basis over the lease term Income taxes Current income taxes Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Deferred taxes Deferred taxes are provided using the balance sheet liability method on temporary differences between the tax base of assets and liabilities and their carrying amount for financial reporting purposes at the reporting date. Deferred tax liabilities are recognized for all taxable temporary differences, except when the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction affects neither the accounting profit nor taxable profit or loss. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that future taxable profits will be available against which the carryforward of unused tax credits and any unused tax losses can be utilized, except when the deferred tax arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction affects neither the accounting profit nor taxable profit or loss. 18

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Income taxes (continued) Deferred taxes (continued) The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax assets to be recovered. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Deferred tax relating to items recognized directly in equity is recognized in OCI and not in profit or loss Rounding-off of amounts Amounts in the financial statements have been rounded off to the nearest dollar and nearest thousand KHR ( KHR 000 ) as applicable Change in accounting policies and disclosures The Company considered the new standards and amendments which are effective for annual periods beginning on or after 1 January 2016, and assessed that they did not have any material impact on the financial statements of the Company. The nature and the effect of these changes are disclosed below. Further, the Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. New and amended standards and interpretations CIFRS 14, Regulatory Deferral Accounts Amendments to CIFRS 11, Joint Arrangements: Accounting for Acquisitions of Interests Amendments to CIAS 16 and CIAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to CIAS 16 and CIAS 41 Agriculture: Bearer Plants Amendments to CIAS 27: Equity Method in Separate Financial Statements Annual Improvements: Cycle CIFRS 5, Non-current Assets Held for Sale and Discontinued Operations CIFRS 7, Financial Instruments: Disclosures CIAS 19, Employee Benefits CIAS 34, Interim Financial Reporting Amendments to CIAS 1 Disclosure Initiative Amendments to CIFRS 10, CIFRS 12 and CIAS 28 Investment Entities: Applying the Consolidation Exception 19

22 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Change in accounting policies and disclosures (continued) Standards issued but not yet effective The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. CIFRS 9, Financial Instruments CIFRS 15, Revenue from Contracts with Customers Amendments to CIFRS 10 and CIAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture CIAS 7 Disclosure Initiative - Amendments to CIAS 7 CIAS 12 Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to CIAS 12 CIFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to CIFRS 2 CIFRS 16, Leases 3. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities, and the accompanying disclosures, as well as 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. Judgments In the process of applying the Company s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements: Determination of functional currency Based on the economic substance of underlying circumstances relevant to the Company, the functional currency of the Company has been determined to be the US$. The US$ is the currency of the primary economic environment in which the Company operates and it is the currency that mainly influences the rendering of services and the cost of providing the services. Operating leases The Company has entered into property lease as a lessee for its office premises. The Company has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a substantial portion of the economic life of the property, that the lessor retains all the significant risks and rewards of ownership over this property and accounts for the contract as operating lease. Finance leases The Company entered into finance leases. The Company has determined that it transferred all the significant risks and rewards of ownership of these properties which are leased out on a finance lease basis. 20

23 3. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued) Judgments (continued) Classification of financial instruments The Company exercises judgment in classifying a financial instrument, or its component parts, on initial recognition as either a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial asset, a financial liability or an equity instrument. The substance of a financial instrument, rather than its legal form, governs its classification in the statement of financial position. Estimates and assumptions The key 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, are described in the next page. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances beyond the control of the Company. Such changes are reflected in the assumptions when they occur. Impairment of loans and receivables The Company reviews its receivables at each reporting date to assess whether an allowance for credit losses should be recorded in profit or loss. In particular, judgment of management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. The carrying amounts of cash on hand and in bank and current accounts with NBC are disclosed in Notes 4 and 5, respectively. The hire purchase and lease receivables and employee loans are disclosed in Note 6 and the accrued interest receivable on employee loans and other receivables are disclosed in Note 9. Impairment of non-financial assets The Company performs impairment review when certain impairment indicators are present. Determining the value in use of non-financial assets which requires the estimation of future cash flows and ultimate disposition of such assets, requires the Company to make assumptions and estimates that can materially affect the Company s financial statements. Future events could cause the Company to conclude that assets are impaired. Any existing impairment loss could have an impact on the Company s financial position and financial performance. The carrying amounts of property and equipment and computer software are disclosed in Notes 7 and 8, respectively. Estimated useful lives of property and equipment and computer software The useful life of each item of property and equipment and computer software is estimated based on the period over which the asset is expected to be available for use. Such estimation is based on a collective assessment of similar businesses, internal technical evaluation and experience with similar assets. The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the estimated useful life of any item of computer software and property and equipment would increase the recorded operating expenses and decrease the carrying value of these nonfinancial assets. The carrying amounts of property and equipment and computer software are disclosed in Notes 7 and 8, respectively. 21

24 3. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued) Estimates and assumptions (continued) Recognition of deferred tax assets The Company assesses its deferred tax assets at each reporting date to determine the extent that it is probable that taxable profit will be available against which all or part of the deferred tax assets can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profit together with future tax planning strategies. Deferred taxes are disclosed in Note CASH AND CASH EQUIVALENTS 31 December December 2015 US$ KHR 000 US$ KHR 000 (Note 2.1.3) (Note 2.1.3) Cash on hand and in bank Cash on hand 3,543 14, Cash in bank 8,331 33,632 4,915 19,906 11,874 47,935 4,993 20,222 Current account with NBC 163, , , ,222 9,986 40, BALANCES WITH THE NATIONAL BANK OF CAMBODIA 31 December December 2015 US$ KHR 000 US$ KHR 000 (Note 2.1.3) (Note 2.1.3) Current account with NBC 163, , Capital guarantee deposit 29, ,881 20,575 83, , ,233 20,575 83,329 Under NBC Prakas No. B on the Licensing of Finance Lease Companies dated 27 December 2011, the Company is required to maintain a non-interest bearing capital guarantee deposit equivalent to 5% of registered capital with the NBC.This deposit is not available for use in the Company s day-to-day operations but is refundable if the Company is liquidated and has no other liabilities. 22

25 6. LOANS AND RECEIVABLES 31 December December 2015 US$ KHR 000 US$ KHR 000 (Note 2.1.3) (Note 2.1.3) Hire purchase and lease receivables - gross 1,106,692 4,467, ,624 3,157,477 Unearned finance income (236,177) (953,447) (135,347) (548,155) 870,515 3,514, ,515 3,514,269 Allowance for probable losses (4,625) (18,672) (3,302) (13,373) Hire purchase and lease receivables - net 865,890 3,495, ,890 3,495,597 Employee loans 37, , ,009 3,645, ,890 3,495,597 The Company s hire purchase agreements and employee loans have terms ranging from three months to four years and require settlement in equal monthly installments. During the year, these hire purchase agreements and employee loans earned annual interest at rates ranging from 24% to 60% (2015: from 12% to 60%). a. Movements of allowance for losses on loans and receivables during the year/period follow: 31 December December 2015 US$ KHR 000 equivalent US$ KHR 000 Equivalent (Note 2.1.3) (Note 2.1.3) Balance at beginning of year/period 3,302 13, Provisions during the year 1,921 7,786 3,302 13,407 Amounts written off (598) (2,415) - - Foreign exchange difference - (72) - (34) Balance at end of year/period 4,625 18,672 3,302 13,373 Collective impairment 1,522 6, Specific impairment 3,103 12,527 3,302 13,373 4,625 18,672 3,302 13,373 Gross amount of loans individually determined to be impaired 3,103 12,527 6,003 24,311 Finance income for the year amounted to US$ 422,153 or KHR 000 1,710,986 (2015: US$189,342 or KHR ,729). 23

26 6. LOANS AND RECEIVABLES (continued) b. Minimum lease receivables Future minimum lease receivables under hire purchase agreements, together with the present value of the net minimum lease receivable, are as follows: 31 December December 2015 Minimum Present value Minimum Present value of lease receivables of lease receivables lease receivables lease receivables US$ US$ US$ US$ Not later than one year 941, , , ,952 Later than one year but not later than five years 164, ,025 28,612 25,325 Total minimum lease payments receivable 1,106, ,515 1,106, ,515 Less: Unearned finance income (236,177) (135,347) Present value of minimum lease payments receivable 870, ,515 KHR 000 (Note 2.1.3) 3,514,269 2,609,322 24

27 7. PROPERTY AND EQUIPMENT 31 December 2016 Leasehold improvements Office furniture, fixtures and equipment Motor vehicles Computer and IT equipment Total US$ US$ US$ US$ US$ Cost Beginning balance ,454 45,608 67,622 Additions during the year - 2,633 9,350 9,074 21,057 Ending balance ,727 22,804 54,682 88,679 Accumulated depreciation Beginning balance ,663 3,645 Charge for the year ,968 4,216 7,526 Ending balance ,166 6,879 11,171 Net book value ,851 7,382 4,858 13,531 KHR 000 (Note 2.1.3) 7,064 13,935 32,636 37,763 91,398 25