Page 83 - UBF AR 2018 - E Version

NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 March 2018

32 FAIR VALUE OF ASSETS AND LIABILITIES
32.1 Assets and Liabilities recorded at fair value

The following is a description of how fair values are determined for financial instruments that are recorded at fair
value using valuation techniques. These incorporate the Company’s estimate of assumptions that a market participant
would make when valuing the instruments.

Financial investments – available for sale

Available for sale financial assets, which primarily consist of quoted equities & Government debt securities are

valued using valuation techniques or pricing models. These assets are valued using models that use observable

data. Government debt securities are valued using yield curves published by the Central Bank of Sri Lanka & quoted

equities are valued using quoted market prices in the active markets as at the reporting date.

Trading assets & other assets measured at fair value

Trading assets & other assets measured at fair value are the government debt securities ,asset–backed securities &

quoted equities. Government debt securities & asset-backed securities are valued using yield curves published by

the Central Bank of Sri Lanka . For quoted equities the Company uses quoted market price in active markets as at the

reporting date.

32.2 Valuation Model
32.3

For all financial instruments where fair values are determined by referring to externally quoted prices or observable

pricing inputs to models, independent price determination or validation is obtained. In an inactive market, direct

observation of a traded price may not be possible. In these circumstances, the Company uses alternative market

information to validate the financial instrument’s fair value, with greater weight given to information that is

considered to be more relevant and reliable.

Fair values are determined according to the following hierarchy:

Level 1 – quoted market price (unadjusted): financial instruments with quoted prices in active markets.

Level 2 – valuation technique using observable inputs: financial instruments with quoted prices for similar instruments

in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments

are valued using models where all significant inputs are observable.

Level 3 – valuation technique with significant unobservable inputs: This category includes all instruments valued

using valuation techniques where one or more significant inputs are unobservable.

Valuation Framework

Cash and Cash Equivalents

Included in Cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of

cash, and which are subject to an insignificant risk of change in value due to interest rate, quoted price, or penalty

on withdrawal. A debt security is classified as a cash equivalent if it meets these criteria and if it has a remaining

time to maturity of three months or less from the date of acquisition. Amounts on deposit and available upon

demand, or negotiated to provide for daily liquidity without penalty, are classified as Cash and cash equivalents. Time

deposits, certificates of deposit, and money market accounts that meet the above criteria are reported at par value

on our statement of financial position.

Finance Receivables (Loans, Lease Rentals Receivable & Stock out on Hire)

We measure performing finance receivables at fair value for purposes of disclosure using internal valuation models.
These models project future cash flows of financing contracts based on scheduled contract payments (including
principal and interest).

Other Financial Assets

Since all the balances which are under other financial assets have short term maturities, it is assumed that the

carrying amounts of those balances approximate their fair values.

Annual Report 2018 81