Page 57 - UBF AR 2018 - E Version

NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 March 2018
2.9.6 Deferred Tax Assets
Deferred tax assets are recognized in respect of tax
losses to the extent that it is probable that future
taxable profit will be available against which the losses
can be utilized. Judgement is required to determine the
amount of deferred tax assets that can be recognized,
based upon the likely timing and level of future taxable
profits, together with future tax-planning strategies. The
deferred taxation is disclosed in more detail in Note 20.
2.9.7 Defined Benefit Plan
The cost of the defined benefit plan and the present
value of its obligations are determined using an actuarial
valuation. The actuarial valuation involves making
assumptions about discount rates, expected rates of
return on assets, future salary increases, mortality
rates and future gratuity increases. Due to the long–
term nature of these plans, such estimates are subject
to significant uncertainty. All assumptions are reviewed
at each reporting date. Refer Note 26 for more detail on
Defined Benefit Plan.
In determining the appropriate discount rate, management
considers the interest rates of Sri Lanka Government
Bonds with extrapolated maturities corresponding to the
expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality Financial Investments Available-for-sale, Financial
tables. Future salary increases are based on expected
future inflation rates and expected future salary increase
rate of the company.
2.9.8 Useful lives of Property, Plant and Equipment
and Intangibles
The Company reviews the assets’ residual values, useful
lives and methods of depreciation at each reporting
date. Judgment by the management is exercised in the
estimation of these values, rates, methods and hence
they are subject to uncertainty.
2.9.9 Commitments and Contingencies
All discernible risks are accounted for in determining the
amount of all known liabilities.
Contingent liabilities are possible obligations whose
existence will be confirmed only by uncertain future
events or present obligations where the transfer of
economic benefit is not probable or cannot be reliably
measured. Contingent liabilities are not recognized in
the Statement of Financial Position but are disclosed
unless they are remote. Refer Note 31 for more details on
Commitments and Contingencies.
2.9.10 Revaluation of Property Plant and Equipment
The Company usually engages an external independent
and qualified valuer once in three year basis to determine
the fair values. When significant changes in fair values
are expected in between, a valuation is adopted in more
regular basis, based on the judgment of the Board,
appropriately advised by the valuer.
Changes in fair value being recognized in other
comprehensive income. The Company engaged an
individual valuation specialist to assess fair value as at
31st March 2017 for land and building. Land and buildings
are valued by reference to market based evidence, using
Annual Report 2018
comparable price adjusted for specific market factors
such as nature, location and condition of the property.
The key assumptions used to determine the fair value of
the properties and sensitivity analyses are provided in
Note 19.4.
3. SIGNIFICANT ACCOUNTING POLICIES
3.1 Cash and Cash Equivalents
The Cash Flow statement is prepared using the direct
method, as stipulated in LKAS 7-“Statement of Cash
Flows” Whereby operating, investing and financial
activities are separately recognized.
For the purpose of the Statement of Cash Flow, cash
and cash equivalents as referred to in the cash flow
statement comprises cash in hand, non–restricted
current account balances with Company’s on demand
(net of unfavourable balances) or with an original
maturity of three months or less and placements with
banks (less than three months) Details of Cash and Cash
Equivalents are given in note 11.
3.2 Financial Instruments – Initial Recognition,
Classification and Subsequent Measurement
Financial Assets within the scope of LKAS 39 are
classified as Loans and Advances, Lease Rental
Receivables, Financial Investments Held-to-Maturity,
Investments Held for Trading as appropriate. The
Company determines the classification of its financial
assets at initial recognition.
3.2.1 Date of recognition
The Company initially recognizes loans and receivables
and deposits with other financial institutions on the
date that they are originated. All other financial assets
are recognized initially on the trade date at which the
Company becomes a party to the contractual provisions
of the instrument.
3.2.2 Initial measurement of Financial Instruments
The classification of financial instruments at
initial recognition depends on their purpose and
characteristics and the management’s intention in
acquiring them. All financial instruments are measured
initially at their fair value plus transaction costs that
are directly attributable to acquisition or issue of such
financial instrument, except in the case of financial
assets at fair value through profit or loss as per the
Sri Lanka Accounting Standard – LKAS 39 on ‘Financial
Instruments: Recognition and Measurement’.
Transaction cost in relation to financial assets at fair
value through profit or loss are dealt with through the
statement of profit or loss.
3.2.3 ‘ Day 1’ Profit or Loss
When the transaction price differs from the fair value
of other observable current market transactions in the
same instrument, or based on a valuation technique
whose variables include only data from observable
markets, the Company recognizes the difference
between the transaction price and fair value (a ‘Day 1’
profit or loss) in ‘Net trading income’
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