PT SUZUKI FINANCE INDONESIA

Transcription

1 FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2015 AND INDEPENDENT AUDITORS REPORT

2 TABLE OF CONTENTS Page DIRECTOR S STATEMENT LETTER INDEPENDENT AUDITORS REPORT FINANCIAL STATEMENTS For the year ended December 31, 2015 Statement of Financial Position 1 Statement of Profit or Loss and Other Comprehensive Income 2 Statement of Changes in Equity 3 Statement of Cash Flows 4 Notes to Financial Statements 5 SUPPLEMENTARY INFORMATION 53

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6 STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2015 December 31, December 31, January 1, 2014 *)/ Notes *) December 31, 2013 *) ASSETS Cash on hand and in banks 5 61,626,510,121 58,948,476,965 54,231,948,501 Consumer finance receivables - net of allowance for impairment losses 162,335,466,999 at December 31, 2015, 131,897,294,702 December 31, 2014 and 91,007,663,112 at January 1, 2014/ December 31, ,696,108,686,263 4,421,320,966,427 3,611,479,084,879 Other accounts receivable 24 37,891,031,630 26,145,372,954 14,780,952,168 Advances and prepaid expenses 7 44,025,156,661 55,890,774,034 45,456,831,804 Deferred tax assets - net ,212,916,207 83,447,816,279 73,868,212,534 Premises and equipment - net of accumulated depreciation of 99,121,844,554 at December 31, 2015, 92,595,161,025 at December 31, 2014 and 90,970,150,222 at January 1, 2014/ December 31, ,381,803,532 28,038,426,029 26,015,893,647 Derivative assets ,132,607, ,287,787, ,718,617,408 Other assets - net 9 53,221,699,343 33,635,623,902 22,583,559,515 TOTAL ASSETS 4,404,600,410,957 4,892,715,243,858 4,035,135,100,456 LIABILITIES AND EQUITY LIABILITIES Trade accounts payable ,817,166,396 95,902,657,053 78,201,532,930 Other accounts payable 15,760,140,929 8,017,087,269 7,011,938,929 Taxes payable 11 5,978,274,782 3,978,225,738 5,318,038,979 Accrued expenses 12, 24 24,465,627,822 38,108,650,189 55,925,750,345 Due to a related party 13, ,080,000, ,560,000,000 60,945,000,000 Loans from financial institutions 14, 24 2,890,482,500,000 3,296,680,000,000 2,687,333,000,000 Derivative liabilities ,812,120 3,047,561,277 - Post-employment benefits obligation 22 39,968,012,996 36,858,071,000 30,846,115,000 Total Liabilities 3,412,723,535,045 3,781,152,252,526 2,925,581,376,183 EQUITY Capital stock - 1,000,000 par value per share Authorised, issued and paid-up - 934,500 shares ,500,000, ,500,000, ,500,000,000 Other comprehensive income 20, 22, 23 24,339,375,378 (2,340,922,894) 19,574,421,702 Retained earnings 33,037,500, ,403,914, ,479,302,571 Total Equity 991,876,875,912 1,111,562,991,332 1,109,553,724,273 TOTAL LIABILITIES AND EQUITY 4,404,600,410,957 4,892,715,243,858 4,035,135,100,456 *) As restated (Note 30) See accompanying notes to financial statements which are an integral part of the financial statements

7 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2015 Notes *) REVENUES Consumer finance income ,046,043, ,844,523,303 Interest income 684,178, ,174,202 Gain on foreign exchange - net 212,568, ,942,262 Other income 17, ,277,513, ,710,657,921 TOTAL REVENUES 953,220,304,978 1,082,586,297,688 EXPENSES Financing charges 18 89,652,464, ,266,401,410 Management and royalty fee ,522,419 1,391,034,039 Operating expenses ,522,032, ,099,048,228 Provision for impairment losses of consumer finance receivables 6 242,743,016, ,155,279,632 Provision for impairment losses of foreclosed assets 9 143,894,322, ,435,834,952 Loss on sale of foreclosed assets - net 9 36,665,804,473 19,624,131,945 Swap cost 198,779,636, ,733,596,887 Other expenses 37,668,485,945 46,053,707,659 TOTAL EXPENSES 1,123,675,284,993 1,021,759,034,752 INCOME (LOSS) BEFORE TAX (170,454,980,015) 60,827,262,936 TAX BENEFIT (EXPENSE) - NET 20 37,055,566,323 (18,249,651,281) NET INCOME (LOSS) FOR THE YEAR (133,399,413,692) 42,577,611,655 OTHER COMPREHENSIVE INCOME Item that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit obligation 22 (3,216,750,000) 1,826,348,000 Income tax benefit (expense) relating to item that will not be reclassified subsequently ,187,500 (456,587,000) Subtotal (2,412,562,500) 1,369,761,000 Item that may be reclassified subsequently to profit or loss: Unrealised gain (loss) on hedging instrument entered into for cash flow hedges 23 38,790,481,066 (31,046,807,461) Income tax benefit (expense) relating to item that will be reclassified subsequently 20 (9,697,620,294) 7,761,701,865 Subtotal 29,092,860,772 (23,285,105,596) Total other comprehensive income - net of tax 26,680,298,272 (21,915,344,596) TOTAL COMPREHENSIVE INCOME (106,719,115,420) 20,662,267,059 *) As restated (Note 30) See accompanying notes to financial statements which are an integral part of the financial statements

8 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2015 Other comprehensive income Hedging reserve - Actuarial gain (loss) - Total Other Notes Capital stock net of tax effect net of tax effect Comprehensive Income Retained earnings Total equity Balance as of January 1, 2014 prior to changes in accounting policy 934,500,000,000 7,892,001,702-7,892,001, ,585,718,571 1,097,977,720,273 Effect of change in accounting for 11,682,420,000 11,682,420,000 (106,416,000) 11,576,004,000 defined benefit obligation - Balance as of January 1, 2014 *) 934,500,000,000 7,892,001,702 11,682,420,000 19,574,421, ,479,302,571 1,109,553,724,273 Net income for the year *) ,577,611,655 42,577,611,655 Other comprehensive income - net of tax *) 20, 22, 23 - (23,285,105,596) 1,369,761,000 (21,915,344,596) - (21,915,344,596) Dividends (18,653,000,000) (18,653,000,000) Balance as of December 31, 2014 *) 934,500,000,000 (15,393,103,894) 13,052,181,000 (2,340,922,894) 179,403,914,226 1,111,562,991,332 Net loss for the year (133,399,413,692) (133,399,413,692) Other comprehensive income 20, 22, 23-29,092,860,772 (2,412,562,500) 26,680,298,272-26,680,298,272 Dividends (12,967,000,000) (12,967,000,000) Balance as of December 31, ,500,000,000 13,699,756,878 10,639,618,500 24,339,375,378 33,037,500, ,876,875,912 *) As restated (Note 30) See accompanying notes to financial statements which are an integral part of the financial statements

9 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2015 *) CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) before tax (170,454,980,015) 60,827,262,936 Adjustments for: Financing charges 89,652,464, ,266,401,410 Swap cost 198,779,636, ,733,596,887 Unrealised loss (gain) on foreign exchange 179,568,999,001 (54,363,012,932) Post-employment benefits 3,141,982,996 8,911,706,000 Loss on sale and provision of impairment losses of foreclosed assets - net 180,560,126, ,059,966,897 Provision for impairment losses of consumer finance receivables 242,743,016, ,155,279,632 Depreciation and amortisation 11,635,929,231 12,090,472,422 Gain on disposal of premises and equipment (300,206,804) (990,803,095) Interest income (684,178,385) (654,174,202) Operating cash flows before changes in working capital 734,642,789, ,036,695,955 Changes in working capital: Consumer finance receivables 85,920,390,314 (1,269,350,695,125) Other accounts receivable (11,745,658,676) (11,364,420,786) Advances and prepaid expenses (6,176,310,537) (10,433,942,230) Other assets (456,886,723) (379,101,685) Trade accounts payable 8,914,509,343 17,701,124,123 Other accounts payable 7,743,053,660 1,005,148,340 Taxes payable (232,118,620) 937,341,009 Accrued expenses (10,593,641,327) (6,956,593,946) Cash generated from operations 808,016,127,237 (678,804,444,345) Interest paid (295,234,068,207) (148,126,907,619) Proceeds from sale of foreclosed assets 213,758,946, ,099,620,678 Income tax paid (1,370,798,735) (22,664,329,571) Post-employment benefits paid (3,248,791,000) (1,073,402,000) Net Cash Provided by (Used in) Operating Activities 721,921,415,524 (704,569,462,857) CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of premises and equipment (8,260,725,104) (12,793,352,819) Acquisitions of intangible assets- software (927,973,806) (368,946,937) Proceeds from sale of premises and equipment 652,138,157 1,561,081,715 Interest received 684,178, ,209,362 Net Cash Used in Investing Activities (7,852,382,368) (11,084,008,679) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from financial institution 3,050,927,900,750 5,593,116,000,000 Proceeds from due to related party - 280,319,000,000 Payments of financial institution (3,749,351,900,750) (5,073,467,000,000) Payment of due to related party - (60,945,000,000) Dividends paid (12,967,000,000) (18,653,000,000) Net Cash Provided by (Used in) Financing Activities (711,391,000,000) 720,370,000,000 NET INCREASE IN CASH ON HAND AND IN BANKS 2,678,033,156 4,716,528,464 CASH ON HAND AND IN BANKS AT BEGINNING OF YEAR 58,948,476,965 54,231,948,501 CASH ON HAND AND IN BANKS AT END OF YEAR 61,626,510,121 58,948,476,965 *) As restated (Note 30) See accompanying notes to financial statements which are an integral part of the financial statements

10 DECEMBER 31, 2015 AND FOR THE YEAR THEN ENDED 1. GENERAL PT Suzuki Finance Indonesia (the Company), formerly PT Maharaja Arthastar Indonesia Finance, was established based on Deed No. 303 dated September 21, 1989 of public notary Benny Kristianto, S.H. The Deed of Establishment was approved by the Minister of Justice of the Republic of Indonesia in his Decision Letter No. C HT TH.89 dated October 7, 1989 and was published in State Gazette No. 90 dated November 10, 1989, Supplement No The articles of association have been amended several times, the latest by Deed No. 26 dated August 30, 2012 of public notary Lily Harjati Soedewo, S.H., concerning the additional line of business in Sharia Consumer Finance. This Deed was approved by the Ministry of Law and Human Rights of the Republic of Indonesia in his Decision Letter No. AHU AH Tahun 2012 dated October 19, The Company s articles of association have been amended several times, the latest by Deed No. 7 dated July 29, 2015 of Lily Harjati Soedewo, S.H., M.Kn., notary in Jakarta, in order to change Company s articles of association to conform with Financial Services Authority Regulation No. 29/POJK.05/2014 regarding Implementation Business of Finance Company, Financial Services Authority Regulation No. 32/POJK.04/2014 regarding Plan Hold Annual Stockholders Meeting of Listed Company and Regulation No. 33/POJK.04/2014 regarding Board of Commissioners and Directors of listed or Public Company. This amendment has been approved by the Minister of Justice and Human Rights of Republic of Indonesia in Decision Letter No. AHU AH Year 2015 dated August 11, In accordance with the amendment of Article 3 of the Company s Articles of Association, the purpose and objective of the Company is to engage as a financial institution with the following lines of business: Multi-purposes Financing of Products and Services Financing of Purchase with Installment Finance and Operating Lease Sale and Leaseback Factoring with Resource for Investment Financing category, and with No Resource for Working Capital Financing category Project Financing and Infrastructure Financing Working Capital Financing Fee Based Income acquisition activities, based on prior notification to the OJK Other Non-Leasing and Financing not specified in 29/POJK.05/2014, based on prior approval by the OJK Sharia consumer finance The Company obtained its operating license from the Minister of Finance of the Republic of Indonesia in his Decision Letter No /1997 dated September 30, The Company had 2,295 and 2,655 permanent employees as of December 31, 2015 and 2014, respectively. The Company is located at the 3 rd A floor of Atrium Mulia Building, suite 301, Jalan H.R. Rasuna Said Kav. B.10-11, Jakarta 12910, Indonesia. The Company, through its shareholders, Itochu Corporation, Japan, is part of the Itochu Company

11 The Company s management as of December 31, 2015 and 2014 consists of the following: Board of Commissioners Commissioners : Mr. Masahiko Kato Mr. Masahiko Kato Mr. Kei Hamazaki Mr. Takuji Motooka Mr. Yosuke Oi Mr. Yosuke Oi Board of Directors President Director Vice President Director Directors : : : Mr. Tatsuya Hirano Mr. Benny Saliman Mr. Ryoichi Inoue Mr. Toshiki Yamazaki Mr. Kenichi Hisamatsu Mr. Nurul Mustofa Mr. Hendry Y. Setiabudi Mr. Dodi Yuliarso Soewandi Mr. Tatsuya Hirano Mr. Benny Saliman Mr. Shinsuke Kuramoto Mr. Ryoichi Inoue Mr. Toshiki Yamazaki The Company s Sharia Supervisory Board as of December 31, 2015 and 2014 consists of the following: Chairman Member : Mr. Drs. H. Sholahudin Al-Aiyub. M.Si : Mr. Drs. H. Saeful Bahri AR 2. ADOPTION OF NEW AND REVISED FINANCIAL ACCOUNTING STANDARDS a. Standards effective in the current period In the current year, the Company adopted the following new and revised standards and interpretations issued by the Financial Accounting Standard Board of the Indonesian Institute of Accountants that are relevant to its operations and effective for accounting period beginning on January 1, PSAK 1 (revised 2013), Presentation of Financial Statements The amendments to PSAK 1 introduce new terminology for the statement of comprehensive income. Under the amendments to PSAK 1, the statement of comprehensive income is renamed as a statement of profit or loss and other comprehensive income. The amendments to PSAK 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to PSAK 1, require additional disclosures to be made in the other comprehensive income section such that items of other comprehensive income are grouped into two categories: (1) items that will not be reclassified subsequently to profit or loss; and (2) items that may be reclassified subsequently to profit or loss when specific conditions are met. The amendments have been applied retrospectively, and hence the presentation of items of other comprehensive income has been modified to reflect the changes

12 Also relevant to the Company is the amendment to PSAK 1 regarding when a statement of financial position as of the beginning of the preceding period (third statement of financial position) and the related notes are required to be presented. The amendments specify that a third statement of financial position is required when a) an entity applies an accounting policy retrospectively, or makes a retrospective restatement or reclassification of items in its financial statements, and b) the retrospective application, restatement or reclassification has a material effect on the information in the third statement of financial position. The amendments specify that related notes are not required to accompany the third statement of financial position. In the current year, the Company has applied a number of new and revised PSAK, which has resulted in material effects on the information in the statement of financial position as of January 1, 2014/December 31, In accordance with the amendments to PSAK 1, the Company has presented a third statement of financial position as of January 1, 2014/December 31, 2013 without the related notes except for the disclosure requirements of PSAK 25, Accounting Policies, Changes in Accounting Estimates and Errors as detailed below. PSAK 24 (revised 2013), Employee Benefits The amendments to PSAK 24 change the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in fair value of plan assets when they occur, and hence eliminate the 'corridor approach' permitted under the previous version of PSAK 24 and accelerate the recognition of past service costs. The amendments require all actuarial gains and losses to be recognised immediately through other comprehensive income in order for the net pension asset or liability recognised in the statement of financial position to reflect the full value of the plan deficit or surplus. Furthermore, the interest cost and expected return on plan assets used in the previous version of PSAK 24 are replaced with a net interest amount under PSAK 24 (revised 2013) which is calculated by applying the discount rate to the net defined benefit liability or asset. These changes have had an impact on the amounts recognized in statement of financial position and statement of profit or loss and other comprehensive income in prior years. In addition, PSAK 24 (revised 2013) introduces certain changes in the presentation of the defined benefit cost including more extensive disclosure. Specific transitional provisions are applicable to first-time application of PSAK 24 (revised 2013). The Company has applied the relevant transitional provisions and restated the comparative amounts on a retrospective basis (Note 30). PSAK 46 (revised 2014), Income Taxes The amendments to PSAK 46: (1) remove references to final tax which was previously scoped in the standard; and (2) establish a rebuttable presumption that the carrying amount of an investment property measured using the fair value model in PSAK 13, Investment Property will be recovered entirely through sale. Under the amendments, unless the presumption is rebutted, the measurement of the deferred tax liability or deferred tax asset is required to reflect the tax consequences of recovering the carrying amount of the investment property through sale. The sale presumption is rebutted if the investment property is depreciable and the investment property is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale

13 The application of PSAK 46 has had no material impact on the disclosures or on the amounts recognized in the financial statements. PSAK 48 (revised 2014), Impairment of Assets PSAK 48 has been amended to incorporate the requirements of PSAK 68, Fair Value Measurement. The application of PSAK 48 has had no material impact on the disclosures or on the amounts recognized in the financial statements. The application of PSAK 48 has had no material impact on the disclosures or on the amounts recognized in the financial statements. PSAK 50 (revised 2014), Financial Instruments: Presentation The amendments to PSAK 50 clarify existing application issues relating to the offsetting requirements. Specifically, the amendments clarify the meaning of currently has a legal enforceable right of set-off and simultaneous realization and settlement. The amendments also clarify that income tax on distributions to holders of an equity instrument and transaction costs of an equity transaction should be accounted for in accordance with PSAK 46 (revised 2014). The amendments require retrospective application. As the Company does not have any offsetting arrangements in place, the application of the amendments has had no material impact on the disclosures or on the amounts recognized in the financial statements. PSAK 55 (revised 2014), Financial Instruments: Recognition and Measurement The amendments to PSAK 55 provide relief from the requirement to discontinue hedge accounting when a derivative designated as a hedging instrument is novated under certain circumstances. The amendments also clarify that any change to the fair value of the derivative designated as a hedging instrument arising from the novation should be included in the assessment and measurement of hedge effectiveness. Further, the amendments clarify the accounting for embedded derivatives in the case of a reclassification of a financial asset out of the fair value through profit or loss category. This standard is also amended to incorporate the requirements of PSAK 68, Fair Value Measurement. The application of PSAK 55 has had no material impact on the disclosures or on the amounts recognized in the financial statements. PSAK 60 (revised 2014), Financial Instruments: Disclosures The amendments to PSAK 60 increase the disclosure requirements for transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the period. Further, entities are required to disclose information about rights of offset and related arrangements (such as collateral posting requirements) for financial instruments under an enforceable master netting agreement or similar arrangement. The amendments have been applied retrospectively. As the Company does not have any offsetting arrangements in place, the application of the amendments has had no material impact on the disclosures or the amounts recognized in financial statements

14 PSAK 68, Fair Value Measurements PSAK 68 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The standard does not change the requirements regarding which items should be measured or disclosed at fair value. PSAK 68 defines fair value, establishes a framework for measuring fair value, and requires disclosure about fair value measurements. The scope of PSAK 68 is broad; it applies to both financial instrument items and nonfinancial instrument items for which other PSAK require or permit fair value measurements and disclosures about fair value measurements, except in specified circumstances. PSAK 68 requires prospective application from January 1, 2015 In addition, specific transitional provisions were given to entities such that they need not apply the disclosure requirements set out in this standard in comparative information provided for periods before the initial application of this standard. In accordance with these transitional provisions, the Company has not made any new disclosures required by PSAK 68 for the 2014 comparative period (see Note 27 for the 2015 disclosures). Other than the additional disclosures, the application of PSAK 68 has not had any material impact on the amounts recognized in the financial statements. b. Standards and interpretation in issue not yet adopted Standard and improvements to standards effective for periods beginning on or after January 1, 2016, with early application permitted as are follows: Standard PSAK 110 (revised 2015): Accounting for Sukuk, Improvements PSAK 5: Operating Segments, PSAK 7: Related Party Disclosures, PSAK 13: Investment Property, PSAK 16: Property, Plant and Equipment, PSAK 19: Intangible Assets, PSAK 22: Business Combination, PSAK 25: Accounting Policies, Changes in Accounting Estimates and Errors, PSAK 53: Share-based Payments, and PSAK 68: Fair Value Measurement Amendments to standards and interpretation which are effective for periods beginning on or after January 1, 2016, with retrospective application are as follows: PSAK 4: Separate Financial Statements about Equity Method in Separate Financial Statements, PSAK 15: Investment in Associates and Joint Venture about Investment Entities: Applying the Consolidation Exception, PSAK 24: Employee Benefits about Defined Benefit Plans: Employee Contributions, PSAK 65: Consolidation Financial Statements about Investment Entities: Applying the Consolidation Exception, - 9 -

15 PSAK 67: Disclosures of Interest in Other Entities about Investment Entities: Applying the Consolidation Exception, and ISAK 30: Levies. The amendments to standards effective for periods beginning on or after January 1, 2016, with amendments to be applied prospectively are as follows: PSAK 16: Property, Plant and Equipment about Clarification of Acceptable Methods of Depreciation and Amortization, PSAK 19: Intangible Asset about Clarification of Acceptable Methods of Depreciation and Amortization, and PSAK 66: Joint Arrangements about Accounting for Acquisitions of Interests in Joint Operation. Amendments to standard and interpretation effective for periods beginning on or after January 1, 2017, with early application permitted are as follows: PSAK 1: Presentation of Financial Statements about Disclosure Initiative ISAK 31: Scope Interpretation of PSAK 13: Investment Property. Standard and amendment to standard effective for periods beginning on or after January 1, 2018, with early application permitted are PSAK 69: Agriculture and amendments to PSAK 16: Property, Plant and Equipment about Agriculture: Bearer Plants. As of the issuance date of the financial statements, management is evaluating the effect of the adoption of these standards on the financial statements. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Statement of Compliance The financial statements of the Company have been prepared in accordance with Indonesian Financial Accounting Standards. These financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and reporting practices generally accepted in other countries and jurisdictions. b. Basis of Preparation The financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below. The presentation currency used in the preparation of the financial statements is the Indonesian Rupiah. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. 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, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics the asset or a liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of PSAK 53, leasing transactions that are within the scope of PSAK 30, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in PSAK 14 or value in use in PSAK

16 The statement of cash flows is prepared using the indirect method with classifications of cash flows into operating, investing and financing activities. c. Foreign Currency Transactions and Translation The books of accounts of the Company are maintained in Indonesian Rupiah, the currency of the primary economic environment in which the entity operates (its functional currency). Transactions during the year involving foreign currencies are recorded at the rates of exchange prevailing at the time the transactions are made. At reporting date, monetary assets and liabilities denominated in foreign currencies are adjusted to reflect the rates of exchange prevailing at that date. The resulting gains or losses are credited or charged to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognized in profit or loss in the period in which they arise. d. Transactions with Related Parties A related party is a person or entity that is related to the Company (the reporting entity): a. A person or a close member of that person's family is related to the reporting entity if that person: i. has control or joint control over the reporting entity; ii. has significant influence over the reporting entity; iii. is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. b. An entity is related to the reporting entity if any of the following conditions applies: i. the entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). ii. one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). iii. both entities are joint ventures of the same third party. iv. one entity is a joint venture of a third entity and the other entity is an associate of the third entity. v. the entity is a post-employment benefit plan for the benefit of employees of either the reporting entity, or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. vi. the entity is controlled or jointly controlled by a person identified in (a). vii. a person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or a parent of the entity). e. Financial Assets All financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value plus transaction costs. The Company s financial assets are classified as Loans and Receivables

17 Loans and Receivables Cash in banks, consumer finance receivables, other accounts receivable and other assets that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest method, except for short-term receivables when the recognition of interest would be immaterial. Effective Interest Method The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instrument, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Income is recognised on an effective interest basis. Impairment of Financial Assets Financial assets are assessed for indicators of impairment at each reporting date. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. Objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation. For loans and receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Company s past experiences of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. The carrying amount is reduced by the impairment loss through the use of an allowance account. When a receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the receivables at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised

18 Derecognition of Financial Assets The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. Early termination of a contract is treated as a cancellation of the existing contract and the resulting gain or loss is recognised to the profit or loss. On derecognition of financial asset in its entirety, the difference between the asset s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. On derecognition of financial asset other than its entirety (e.g., when the Company retains an option to repurchase part of a transferred asset), the Company allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts. f. Financial Liabilities and Equity Instruments Classification as debt or equity Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Financial liabilities Financial liabilities are classified as at amortised cost. Financial liabilities at amortised cost Financial liabilities, which include trade accounts payable, other accounts payable, accrued expenses, due to a related party and loans from financial institutions are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, using the effective interest method, with interest expense recognised on an effective interest method

19 Derecognition of financial liabilities The Company derecognises financial liabilities when, and only when, the Company s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. g. Netting of Financial Assets and Financial Liabilities The Company only offsets financial assets and liabilities and present the net amount in the statement of financial position where it: currently has a legal enforceable right to set off the recognised amount; and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. h. Fair Value In order to increase consistency and comparability in fair value measurements and related disclosures, the Company measures the fair value on the following hierarchy that categorized into three levels the inputs to valuation techniques: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). i. Consumer Finance Receivables and Murabahah Finance Receivables At initial recognition, the consumer finance receivables are recorded at its fair value which consists of the consumer financing receivables plus transaction costs that are directly attributable to receivables, such as charges paid to dealer which are directly related to consumer financing. Such cost are amortised over the term of the financing based on the effective interest method. Consumer finance receivables are stated at their carrying amounts, net of impairment. The carrying amount of consumer finance receivables is the amount of receivables net of the portion financed by banks, amortised using the effective interest rate (Note 3e). Receivables are written off when they are deemed to be uncollectible based on Company s management evaluation. Written off receivables are recognised as other income upon receipt. Included in consumer finance receivable are Murabahah finance receivables. Murabahah is a sell-buy contract for an item whose selling price consist of the acquisition cost plus agreed margin. The Company is required to disclose the acquisition cost to the consumer. When the Murabahah contract is signed, Murabahah finance receivables are recognised at acquisition cost plus the agreed margin. Murabahah margin are recognised over the period of the contract by calculating the amortised cost of the receivables and allocating murabahah margin over the relevant period. At the end of reporting period, Murabahah finance receivables are stated at their net realisable value, less the outstanding amounts of deferred Murabahah margins and allowance for impairment losses

20 Administration income earned from customers at the time the consumer financing agreement is signed are recorded as other income in the current year. j. Prepaid Expenses Prepaid expenses are amortised over their beneficial periods using the straight-line method. k. Premises and Equipment Premises and equipment held for use in the supply of services, or for administrative purposes, are stated at cost, less accumulated depreciation and any accumulated impairment losses. Depreciation is recognised so as to write-off the cost of assets less residual values using the straight-line method based on the estimated useful lives of the assets as follows: Years Leasehold improvements Motor vehicles Computers Office equipment The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. The cost of maintenance and repairs is charged to operations as incurred. Other costs incurred subsequently to add to, replace part of, or service an item of premises and equipment, are recognised as asset if, and only if it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably. When assets are retired or otherwise disposed of, their carrying values are removed from the accounts and any resulting gain or loss is reflected in the profit or loss. l. Foreclosed Assets Foreclosed assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the foreclosed asset is available for immediate sale in its present condition. Foreclosed assets classified as held for sale are measured at the lower of their previous carrying amount and fair value less cost to sell. The excess of net realisable value of the foreclosed collateral over the balance of uncollectible receivables is credited or charged to profit or loss. Expenses related to the foreclosed assets and its maintenance are charged to profit or loss as incurred. At the end of the year, foreclosed collateral are reviewed for any impairment in value. When the foreclosed collaterals are disposed of, their carrying values are removed from the accounts and any resulting gains or losses are credited or charged to profit or loss. m. Impairment of Non-Financial Assets At the end of reporting period, the Company reviews the carrying amount of non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs

21 Estimated recoverable amount is the higher of fair value less cost to sell or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of a non-financial asset (cash generating unit) is less than its carrying amount, the carrying amount of the asset (cash generating unit) is reduced to its recoverable amount and an impairment loss is recognised immediately against earnings. n. Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. o. Revenue and Expense Recognition Revenue recognition for consumer finance activities is described in Notes 3e and 3i. Interest income is accrued on time basis, by reference to the principal outstanding and at the applicable interest rate. Expenses are recognised when incurred. p. Post-Employment Benefits The Company provides defined post-employment benefits to its qualifying employees in accordance with Labor Law No. 13/2003. No funding has been made to this defined benefit plan. The cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gains and losses, is reflected immediately in the statement of financial position with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement recognised in other comprehensive income is reflected as a separate item under other comprehensive income in equity and will not be reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorised as follows: - Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements). - Net interest expense or income. - Remeasurement

22 The Company presents the first two components of defined benefit costs in profit or loss. Curtailment gains and losses are accounted for as past service costs. The retirement benefit obligation recognised in the statement of financial position represents the actual deficit or surplus in the Company s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans. q. Income Tax The tax currently payable is based on taxable profit to the year. Taxable profit differs from profit before tax as reported in the statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. Current tax expense is determined based on the taxable income for the year computed using prevailing tax rates. Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on the tax rates (and tax laws) that have been enacted, or substantively enacted, by the end of the reporting period. The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of their assets and liabilities. The carrying amount of deferred tax asset is reviewed at the end of each reporting period 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 asset to be recovered. Current and deferred tax are recognized as an expense or income in profit or loss, except when they relate to items that are recognized outside of profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognized outside of profit or loss. Deferred tax assets and liabilities are offset when there is legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle their current tax assets and current tax liabilities on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. r. Derivative Financial Instruments The Company uses interest rate swaps and cross currency swaps to hedge the risk associated with interest rate and foreign currency fluctuations. All derivative instruments are recognised as either assets or liabilities and are measured at fair value. The Company does not use derivatives for trading or other speculative purposes. Derivatives are initially recognised at fair value at the date the derivative contract is entered into and are subsequently measured to their fair values at each reporting date

23 Although entered into as economic hedge of exposure against interest rate and foreign exchange rate risks, these derivatives are not designated and do not qualify as accounting hedge and therefore changes in fair values are recognized immediately in profit or loss. A derivative is presented as non-current asset or non-current liability if the remaining maturity of the instrument is more than 12 months and is not expected to be realized or settled within 12 months. Other derivatives are presented as current assets or current liabilities. s. Cash Flow Hedges The Company uses cash flow hedges to manage interest rate and foreign currency risk related to forecasted transactions. At the inception of the hedge relationship, the Company documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the statements of comprehensive income as the recognised hedged item. However, when the hedged forecast transaction results in the recognition of a nonfinancial asset or a non-financial liability, the gains and losses previously recognised in other comprehensive income and accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability. Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss. 4. CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES In the application of the Company accounting policies, which are described in Note 3, the directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods