Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 145 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 28. FINANCIAL INSTRUMENTS (CONT’D) (a) Financial Risk Management Policies (Cont’d) Credit Risk (Cont’d) (iii) Assessment of impairment losses The Group has an informal credit policy in place and the exposure to credit risk is monitored on an ongoing basis through periodic review of the ageing of the receivables. The Group closely monitors the receivables’ financial strength to reduce the risk of loss. At each reporting date, the Group assesses whether any of the financial assets at amortised cost are credit impaired. The gross carrying amount of financial asset is written off against the associated impairment, if any, when there is no reasonable expectation of recovery-despite the fact that they are still subject to enforcement activities. A financial asset is credit impaired when any of following events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred: - Significant financial difficulty of the receivable; - A breach of contract, such as a default or past due event; - Restructuring of a debt in relation to the receivable’s financial difficulty; and - It is becoming probable that the receivable will enter bankruptcy or other financial reorganisation. The Group considers a receivable to be in default when the receivable is unlikely to repay its debt to the Group in full or is more than 365 days past due. The Group uses a more lagging past due criterion for certain trade receivables when it is more appropriate to reflect their loss patterns. • Trade receivables The Group applies the simplified approach to measure expected credit losses which using a lifetime expected credit loss allowance for all trade receivables. Inputs, Assumptions and Techniques used for Estimating Impairment Losses To measure the expected credit losses, trade receivables (including related parties) have been grouped based on shared credit risk characteristics and the days past due. The Group measures the expected credit losses of certain major customers, trade receivables that are credit impaired and trade receivables with a high risk of default on individual basis. The expected loss rates are based on the payment profiles of sales over 60 months (2022: 48 months) before the reporting date and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the trade receivables to settle their debts using the linear regressive analysis. The Group has identified the Gross Domestic Product as the key macroeconomic factor of the forward-looking information. There are no significant changes in the estimation techniques and assumptions as compared to the previous financial year.
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