Page 133 - Suncorp_Review

Suncorp Group Limited Annual Report 2010/11 131

33.1.16 Impairment

(a) Financial assets

Financial assets, other than those measured at fair value through proft and loss, are assessed each reporting date to determine whether there is any objective evidence of impairment. If impairment has occurred, the carrying amount of the asset is written down to its estimated recoverable amount.

Loans and receivables

An impairment loss is recognised in respect of fnancial assets measured at amortised cost when the carrying amount of the asset exceeds the present value of its estimated discounted future cash fows calculated based on the asset’s original effective interest rate. When impairment losses are recognised, the carrying amount of the relevant asset or group of assets is reduced by the balance of the provision for impairment. If a subsequent event causes the amount of the impairment loss to decrease, the impairment loss is reversed through proft or loss.

The amount necessary to bring the impairment provisions to their assessed levels, after write-offs, is charged to proft or loss. All known bad debts are written off in the period in which they are identifed. Where not previously provided for, they are written off directly to proft or loss.

The unwinding of the discount from initial recognition of impairment through to recovery of the written down amount is recognised through interest income.

In relation to provision for impairment of Banking loans and advances, two categories of provisions are recognised: specifc provisions and collective provisions. Specifc impairment provisions are recognised for all loans where there is objective evidence that an individual loan is impaired. Specifc impairment provisions are based on the carrying amount of the loan and the present value of expected future cash fows. Where loans are not assessed as individually impaired, they are classifed into groups of loans with similar credit risk characteristics and collectively assessed for impairment. Collective impairment provisions are based on historical loss experience adjusted, where appropriate, for current observable data.

The difference between the Suncorp Group’s specifc and collective provisions for impairment and the estimate of credit losses across the credit cycle based on guidance provided by APRA is recognised in the general reserve for credit losses.

Available-for-sale fnancial assets

An impairment loss is recognised in respect of available-for-sale fnancial assets where there is evidence of a decrease in fair value below cost. Cumulative losses are transferred from the available-for-sale reserve in equity to the proft or loss. When subsequent events cause the amount of the impairment loss to decrease, a reversal of the impairment is recognised in proft or loss for debt securities and in equity for equity securities.

(b) Non-fnancial assets

Non-fnancial assets are assessed for indicators of impairment at each reporting date. Indicators include both internal and external factors. If any such indication exists, the asset’s recoverable amount is estimated.

An impairment loss is recognised whenever the asset’s carrying amount exceeds its recoverable amount. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifable cash fows (cash-generating units) – this may be an individual asset or a group of assets. For the purpose of assessing impairment of goodwill, goodwill is allocated to cash-generating units representing the Suncorp Group’s investment in each of its business lines, which are its operating segments.

The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash fows are discounted to their present value using a pre-tax discount rate that refects current market assessments of the time value of money and the risks specifc to the asset. Impairment losses are recognised in proft or loss.

After the recognition of an impairment loss, the depreciation (amortisation) charge for the asset is adjusted in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.

Impairment losses, if any, recognised in respect of cash‑generating units are allocated frst to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis.

An impairment loss recognised for goodwill is not reversed. An impairment loss for an asset other than goodwill is reversed in following periods if there are indications that the impairment loss previously recognised no longer exists or has decreased. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortisation, if no impairment loss had been recognised.

33.1.17 Non-derivative fnancial liabilities

(a) Financial liabilities at fair value through proft or loss These liabilities are classifed as either held for trading or those that are designated upon initial recognition. Liabilities are initially recognised on trade date at fair value with any directly attributable transaction costs recognised in proft or loss as incurred. Fair value is determined using the offer price where available. Movements in the fair value are recognised in the proft or loss. The Suncorp Group designates certain short-term offshore borrowings as being at fair value through proft or loss when they are managed on a fair value basis.