Accounting policies are the specific principles, bases, conventions, rules and practices applied consistently by the Group in presenting and preparing the financial statements. Changes in accounting policies are made, only if the Sri Lanka Accounting Standards require such changes or when a change results in providing more relevant information. New policies are formulated as appropriate to new products and services provided by the Group or new obligations incurred by the Group.
5.1 Revenue and expense recognition
Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured.
5.1.1 Interest income and expense
Details of interest income and expenses are given in
Note 10 on pages 161 to 162.
5.1.2 Net fees and commission
Details of commission income and expenses are given in Note 11 on pages 162 to 163.
5.1.3 Net (loss)/gain from trading
Details of net (loss)/gain from trading are given in
Note 12 on page 163.
5.1.4 Net fair value gains/(losses) from financial instruments at fair value through profit or loss
Details of net fair value gain/(loss) from Financial Instruments at Fair Value Through Profit or Loss are given in Note 13 on page 164.
5.1.5 Net gains from derecognition of financial assets
Details of net gains from derecognition of financial assets are given in Note 14 on page 164.
5.1.6 Net other operating income
Details of net gain/(loss) from financial instruments are given in Note 15 on page 165.
5.1.7 Foreign exchange gain/(loss)
Items included in the financial statements of the Bank are measured in Sri Lankan rupees denoted as LKR which is the currency of the primary economic environment in which the Bank operates (“the functional currency”) as well as the presentation currency.
Transactions in foreign currencies are recorded in the functional currency at the average exchange rate on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the average exchange rate ruling at the reporting date (viz. date of the statement of financial position) and consequently recognised in the net other operating income in the income statement of the Bank except for qualifying cash flow hedges. The average exchange rate used is the middle rates quoted by commercial banks for purchase or sale of the relevant foreign currency.
The Bank does not have any non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency.
Foreign exchange income recognised in the income statement is presented as follows, based on the underlying classification:
(i) Foreign exchange gain/(loss) which is part of a trading activity comprising profit or loss from the sale and purchase of foreign currencies for spot exchange is included as net gain from trading (Note 12).
(ii) Foreign exchange income or loss on derivatives held-for-risk management purposes and mandatory measured at fair value through profit or loss is recognised as net gain/loss from financial instruments at fair value through profit or loss (Note 13).
The Bank does not have any foreign operation that is a subsidiary, associate, joint venture or a branch and therefore, there is no exchange differences recognised in other comprehensive income.
5.1.8 Other expenses
All other expenses are recognised on an accrual basis.
5.2 Other taxes
5.2.1 Withholding tax on dividend distributed by subsidiaries, associate company and joint venture company
Dividend distributed out of the taxable profit of the subsidiaries, associate company and joint venture company suffers a 14% deduction at source and is not available for set-off against the tax liability of the Bank. Thus the withholding tax deducted at source, is added to the tax expense of the subsidiary companies, the associate company, and joint venture company in the Group’s financial statements as a consolidation adjustment.
5.2.2 Withholding tax on dividends distributed by the Bank
Withholding tax that arises from the distribution of dividends by the Bank is recognised at the time the liability to pay the related dividend is recognised .
5.2.3 Economic services charge (ESC)
As per provisions of the Economic Services Charge
(ESC) Act No. 13 of 2006 and subsequent amendments thereto, ESC is payable on aggregate turnover of the Bank at 0.5% and is deductible from income tax payable.
5.2.4 Crop insurance levy (CIL)
As per the provisions of the Section 14 of the Finance Act No. 12 of 2013, the CIL was introduced with effect from 1 April 2013 and is payable to the National Insurance Trust Fund. Currently the CIL is payable at 1% of the profit after tax.
5.3 Financial assets
5.3.1 Recognition and measurement
The financial asset is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction cost that are directly attributable to its acquisition.
Loans and advances are initially recognised on the date at which they are originated at fair value which is usually the loan amount granted and subsequent measurement is at amortised cost.
The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.
All other financial assets are initially recognised on the trade date at which the Bank becomes a party to the contractual provisions of the instrument.
Basis of measurement applicable before 1 January 2018 and after 1 January 2018 is set out in Note 2.4
5.3.2 Classification
5.3.2.1 Policy applicable after 1 January 2018
On initial recognition, the Bank classifies financial assets as measured at:
- Amortised cost,
- Fair value through other comprehensive income (FVOCI); and,
- Fair value through profit or loss (FVTPL)
The subsequent measurement of financial assets depends on their classification.
5.3.2.1.1 Financial assets measured at
amortised costs
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
- The asset is held within a business model (explained in Note 5.3.2.2) whose objective is to hold assets to collect contractual cash flows; and
- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
5.3.2.1.2 Financial assets at fair value through other comprehensive income
A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL:
- The asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Bank may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis.
5.3.2.1.3 Financial assets at fair value through profit or loss
All financial assets other than those classified at amortised costs or FVOCI are classified as measured at FVTPL.
5.3.2.1.3.1 Financial assets are mandatorily fair valued through profit and loss when the instruments
- are held for trading, or
- are managed, evaluated and reported internally on a fair value basis, or
- designation eliminates or significantly reduces an accounting mismatch which would otherwise arise, or
- contains an embedded derivative that significantly modifies the cash flows which would otherwise have been required under the contract.
5.3.2.1.3.2 Financial assets designated at fair value through profit or loss
In addition, on initial recognition, the Bank may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised
cost or at FVOCI or at FVTPL if doing so eliminates
or significantly reduces an accounting mismatch that would otherwise arise.
The Bank has not designated any financial asset upon initial recognition at fair value through profit or loss as
at the reporting date.
5.3.2.2 Business model assessment
The Bank makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to the Management. The information considered includes:
- the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether Management’s strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;
- how the performance of the portfolio is evaluated and reported to the Bank’s Management;
- the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;
- how managers of the business are compensated –
e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and
- the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Bank’s stated objective for managing the financial assets is achieved and how cash flows are realised.
Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.
5.3.2.3 Assessments whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, “principal” is defined as the fair value of the financial asset on initial recognition. “Interest” is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as profit margin.
In assessing whether the contractual cash flows are
solely payments of principal and interest, the Bank considers the contractual terms of the instrument.
This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would
not meet this condition.
In making the assessment, the Bank considers:
- contingent events that would change the amount and timing of cash flows;
- leverage features;
- prepayment and extension terms;
- terms that limit the Bank’s claim to cash flows from specified assets; and
- features that modify consideration of the time value of money.
5.3.2.4 Policy applicable before 1 January 2018
At the inception, a financial asset is classified and measured at fair value and classified as follows:
- Loans and receivables – at amortised cost.
- Held to maturity – non-derivative financial assets with fixed or determinable payments and fixed maturity (for example, bonds, debentures and debt instruments listed in the Colombo Stock Exchange) that the Bank has the positive intent and ability to hold to maturity are measured at amortised cost.
- Fair value through profit or loss – financial assets held for trade measured at fair value with changes in fair value recognised in the income statement.
- Designated at fair value – this is an option to deal with accounting mismatches and currently the Bank has not exercised this option.
- Derivative assets – are mandatorily measured at fair value with fair value changes recognised in the income statement.
- Available for sale – this is measured at fair value and is the residual classification with fair value changes recognised in other comprehensive income.
5.3.3 Reclassification
Policy applicable after 1 January 2018
Financial assets are not reclassified subsequent to their initial recognition, except and only in those rare circumstances when the Bank’s changes its objective of the business model for managing such financial assets.
Financial Liabilities are not reclassified as such reclassifications are not permitted by SLFRS 9.
5.3.3.1 Timing of reclassification of financial assets
Consequent to the change in the business model,
the Bank reclassifies all affected assets prospectively
from the first day of the next reporting period (the reclassification date). Prior periods are not restated.
5.3.3.2 Measurement of reclassification of financial assets
5.3.3.2.1 Reclassification of financial instruments at “fair value through profit or loss”
- To Fair value through other comprehensive income The fair value on reclassification date becomes the new gross carrying amount. The EIR is calculated based on the new gross carrying amount. Subsequent changes in the fair value are recognised in OCI.
- To amortised costs the fair value on reclassification date becomes the new carrying amount. The EIR is calculated based on the new gross carrying amount.
5.3.3.2.2 Reclassification of financial instruments at “fair value through other comprehensive income”
- To fair value through profit or loss The accumulated balance in OCI is reclassified to profit and loss on the reclassification date.
- To amortised costs
The financial asset is reclassified at fair value. The cumulative balance in OCI is removed and is used to adjust the reclassified fair value. The adjusted amount becomes the amortised cost. EIR determined at initial recognition and gross carrying amount are not adjusted as a result of reclassification.
5.3.3.2.3 Reclassification of financial instruments at “amortised costs”
- To Fair value through other comprehensive income
The asset is remeasured to fair value, with any difference recognised in OCI. EIR determined at initial recognition is not adjusted as a result of reclassification.
- To Fair value through profit or loss
The fair value on the reclassification date becomes the new carrying amount. The difference between amortised cost and fair value is recognised in profit and loss.
Policy applicable before 1 January 2018
The group classified its financial assets into one of the following categories:
- Loans and receivable
- Held-to-maturity
- Available for sale and
- At FVTPL, and within this category as:
- held-for-trading: or
- designated as at FVTPL
5.3.4 Derecognition of financial assets
Financial assets are derecognised when the contractual right to receive cash flows from the asset has expired; or when Bank has transferred its contractual right to receive the cash flows of the financial assets, and either –
- Substantially all the risks and rewards of ownership have been transferred;
or
- Bank has neither retained nor transferred substantially all the risks and rewards, but has not retained control of the financial asset.
From 1 January 2018 any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in profit or loss on derecognition of such securities. Any interest in transferred financial assets that qualify for derecogntion that is created or retained by the group is recognised as a separate asset or liability.
5.3.5 Modifications of financial assets and financial liabilities
Policy applicable from 1 January 2018
Financial assets
If the terms of a financial asset are modified, then the Group evaluates whether the cash flows of the modified asset are substantially different.
If the cash flows are substantially different, then the contractual right to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and new financial asset is recognised at fair value plus any eligible transaction cost. Any fees received as part of the modification are accounted as follows:
- Fees that are considered in determining the fair value of the new asset and fees that represent reimbursement of eligible transaction costs are included in the initial measurement of the asset; and
- Other fees are included in profit or loss as part of the gain or loss on the derecognition.
If cash flows are modified when the borrower is in financial difficulty, then the objective of the modification is usually to minimise recovery of the original contractual term rather than to originate a new asset with substantially different terms. If the Group plans to modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset should be written off before the modification takes place. This approach impacts the result of the quantitative evaluation and means that the derecognition criteria are not usually met in such cases.
If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset, then the Bank first recalculates a gross carrying amount of the financial asset using the original effective interest rate of the asset and recognizes the resulting adjustment as modification gain or loss in profit or loss. For floating- rate financial asset, the original effective interest rate used to calculate the modification gain or loss is adjusted to reflect current market terms at the time of modification. Any costs or fees incurred and fees received as part of the modification adjust the gross carrying amount of the modified financial asset and are amortised over the remaining term of the financial asset.
5.3.6 Fair value measurement
“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 in the principal or, in its absence, the most advantageous market to which the Bank has access at that date. The fair value of a liability reflects its non-performance risk.
When available, the Bank measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active, if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, then the Bank uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.
The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e., the fair value of the consideration given or received. If the Bank determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition
and the transaction price.
Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.
If an asset or a liability measured at fair value has a bid price and an ask price, then the Bank measures assets and long positions at a bid price and liabilities and short positions at an ask price.
Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Bank on the basis of the net exposure to either market or credit risk are measured on the basis of a price that would be received to sell a net long position
(or paid to transfer a net short position) for a particular risk exposure. Those portfolio-level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio.
The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid.
The Bank recognises transfers between levels of the fair value hierarchy as end of the reporting period during which the change has occurred.
5.3.7 Identification and measurement of impairment
5.3.7.1 Policy applicable after
1 January 2018
5.3.7.1.1 Recognition of impairment of
financial assets
The Bank recognises loss allowances for Expected Credit Losses (ECL) on the following financial instruments that are not measured at FVTPL:
- Financial assets that are debt instruments;
- Lease receivables;
- Financial guarantee contracts issued; and
- Loan commitments issued.
No impairment loss is recognised on equity investments.
The Bank measures loss allowances at an amount equal to lifetime ECL, except for the following, for which they are measured as 12-month ECL:
- Debt investment securities that are determined to
have low credit risk at the reporting date; and
- Other financial instruments (other than lease receivables) on which credit risk has not increased significantly since their initial recognition.
The Bank considers a debt security to have low credit risk when their credit risk rating is equivalent to the globally understood definition of “investment grade”. 12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date.
5.3.7.1.2 Presentation of allowance for ECL in the statement of financial position
Loss allowances for ECL are presented in the statement of financial position as follows:
- Financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;
- Loan commitments and financial guarantee contracts: generally, as a provision;
- Where a financial instrument includes both a drawn and an undrawn component, and the Bank cannot identify the ECL on the loan commitment component separately from those on the drawn component: the Bank presents a combined loss allowance for both components: The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a provision; and
- Debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair value reserve.
5.3.7.2 Policy applicable before 1 January 2018
At each reporting date, the Bank assesses whether there is an objective evidence that financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s) that can be estimated reliably.
5.3.7.2.1 Loans and advances and
held-to-maturity investment securities
Objective evidence that loans and advances and held-to-maturity investment securities (e.g., debt instruments quoted in the Colombo Stock Exchange, Treasury Bills and Bonds) are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan or advance by the Bank on terms that the Bank would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the Group or economic conditions that correlate with defaults in the Group.
The Bank considers evidence of impairment for loans and advances and held-to-maturity investment securities at both a specific and collective level. Details of the individual and collective assessment of impairments are given in Note 16 on pages 166 to 169.
5.3.7.2.2 Available-for-sale financial assets
At each date of statement of financial position an assessment is made of whether there is any objective evidence of impairment in the value of a financial asset. Impairment losses are recognised if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the financial asset (a “loss event”) and that loss event
(or events) have an impact on the estimated future cash flows of the financial asset that can be reliably estimated.
If the available-for-sale financial asset is impaired, the difference between the financial asset’s acquisition cost (net of any principal repayments and amortisation) and the current fair value, less any previous impairment loss recognised in the income statement, is removed from other comprehensive income and recognised in
the income statement.
5.3.7.2.3 Available-for-sale debt securities
When assessing available-for-sale debt securities for objective evidence of impairment at the reporting date. Bank considers all available evidence, including observable data or information about events specifically relating to the securities which may result in a shortfall in recovery of future cash flows. These events may include a significant financial difficulty of the issuer, a breach of contract such as a default, bankruptcy or other financial recognition, or the disappearance of an active market for the debt security.
These types of specific events and other factors such as information about the issuers’ liquidity, business and financial risk exposures, levels of and trends in default for similar financial assets, national and local economic trends and conditions, and the fair value of collateral and guarantees may be considered individually, or in combination, to determine if there is objective evidence
of impairment of a debt security.
5.3.7.2.4 Available-for-sale equity securities
Objective evidence of impairment for available-for-sale equity securities may include specific information about the issuer and information about significant changes in technology, markets, economics or the law that provide evidence that the cost of the equity securities may not
be recovered.
A significant or prolonged decline in the fair value of the asset below its cost is also objective evidence of impairment. In assessing whether it is significant, the decline in fair value is evaluated against the original cost of the asset at initial recognition. In assessing whether it is prolonged, the decline is evaluated against the period in which the fair value of the asset has been below its original cost at initial recognition.
Once an impairment loss has been recognised on an available-for-sale financial asset, the subsequent accounting treatment for changes in the fair value of that asset differs depending on the nature of the available-for-sale financial asset concerned:
- For an available-for-sale debt security, a subsequent decline in the fair value of the instrument is recognised in the income statement when there is further objective evidence of impairment as a result of further decreases in the estimated future cash flows of the financial asset. Where there is no further objective evidence of impairment, a decline in the fair value of the financial asset is recognised in other comprehensive income. If the fair value of a debt security increases in a subsequent period, and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement. If there is no longer objective evidence that the debt security is impaired, the impairment loss is also reversed through the income statement.
- For an available-for-sale equity security, all subsequent increases in the fair value of the instrument are treated as a revaluation and are recognised in other comprehensive income. Impairment losses on the equity security are not reversed through the income statement. Subsequent decreases in the fair value of the available-for-sale equity security are in the income statement, to the extent that further cumulative impairment losses have been incurred in relation to the acquisition cost of the equity security.
5.3.7.3 Impairment of intangible assets – computer application software and goodwill on consolidation
The Bank reviews on the date of the statement of
financial position, whether the carrying amount is lower than the recoverable amount. In such event, the carrying amount is reduced to the recoverable amount and the reduction being an impairment loss is immediately recognised in the income statement. The recoverable amount is the value in use.
5.3.8 Offsetting
Financial assets and financial liabilities are offset
and the net amount is reported in the statement of financial position when there is a legally enforceable
right to offset the amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under SLFRSs/LKASs or for gains and losses arising from a group of similar transactions.
5.3.9 Fiduciary assets
Assets held in a fiduciary capacity are not reported
in these financial statements as they do not belong to
the Bank.
5.3.10 Write-off of financial assets
The Bank writes off a loan or an investment debt security, and any related allowances for impairment losses, when Bank determines that the loan or security is uncollectible. This determination is made after considering information such as the occurrence of significant changes in the borrower’s/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised loans, write-off decisions generally are based on a product-specific past due status.
5.4 Financial liabilities
5.4.1 Recognition and measurement of financial liabilities
Policy applicable after 1 January 2018
On initial recognition, the Bank classifies financial liabilities, other than financial guarantees and loan commitments, into one of the following categories:
- Financial liabilities at amortised cost; and
- Financial liabilities at fair value through profit or loss,
Policy applicable before 1 January 2018
Deposits, borrowing from foreign multilateral, bilateral sources and domestic sources, debt securities issued and subordinated liabilities are initially recognised on the date at which they are originated. A financial liability is measured initially at fair value plus, transaction costs that are directly attributable to its acquisition or issue.
Subsequent measurement of financial liability is at fair value or amortised cost. The amortised cost of a financial liability is the amount at which the financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount and the maturity amount.
5.4.2 Classification and subsequent measurement of financial liabilities
The subsequent measurement of financial liabilities depends on their classification.
5.4.2.1 Financial liabilities at amortised cost
Financial Liabilities issued by the Bank that are not designated at fair value through profit or loss are recognised initially at fair value plus any directly attributable transaction costs, by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method. Deposit liabilities including savings deposits, current deposits, fixed/time deposits, call deposits, certificates of deposit and debentures are classified as financial liabilities measured at amortised cost.
The EIR amortisation is included in “Interest expense” in the income statement. Gains and losses too are recognised in the income statement when the liabilities are derecognised as well as through the EIR amortisation process.
5.4.2.2 Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or
loss include derivative liabilities held for risk management purposes
5.4.3 Derecognition of Financial Liabilities
Group derecognises a financial liability when its contractual obligations are discharged, cancelled
or expired.
5.4.4 Due to Banks, customers, debt securities issued and other borrowing
Financial liabilities are recognised when Group enters into the contractual provisions of the arrangements with counterparties, which is generally on trade date, and initially measured at fair value, which is normally the consideration received, net of directly attributable transaction costs incurred. Subsequent measurement of financial liabilities is at amortised cost, using the effective interest method to amortise the difference between proceeds received, net of directly attributable transaction costs incurred, and the redemption amount over the expected life of the instrument.
5.4.5 Provisions
Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a current legal or constructive obligation, which has arisen as a result of past events, and for which a reliable estimate can be made of the amount of the obligation.
5.4.6 Sale and repurchase agreements
When securities are sold subject to a commitment to repurchase them at a predetermined price (“repos”),
they remain on the statement of financial position
and a liability is recorded in respect of the
consideration received.
Securities purchased under commitments to sell (“reverse repos”) are not recognised on the statement of financial position and the consideration paid is recorded in “Financial assets at amortised cost – Loans to and receivables from banks”, “Financial assets at amortised cost – Loans to and receivables from other customers” as appropriate. The difference between the sale and repurchase price is treated as interest and recognised
over the life of the agreement for loans and advances to banks and customers.
5.5 Stated capital
Shares are classified as equity when there is no contractual obligation to transfer cash or other
financial assets.
5.6 Dividends Payable
Dividends on ordinary shares are recognised as a liability and deducted from equity when they are declared and approved by Board of Directors.
Dividends for the year, that are approved after the reporting date and not provided for, are disclosed as an event after the reporting period in accordance with the Sri Lanka Accounting Standard – LKAS 10, on “Events after the reporting period” in Note 59 on page 222.