CAPITA FINANCIAL SERVICES INC. (ST. LUCIA BRANCH) Notes to the Financial Statements March 31, 2024 (expressed in Eastern Caribbean dollars) 11 2 Material accounting policy information …continued b) Financial assets and financial liabilities …continued ii) Classification … continued Assessment of whether contractual cash flows are solely payments of principal and interest …continued The Branch holds a portfolio of long-term fixed-rate loans for which the Branch has the option to propose to revise the interest rate at periodic reset dates. These reset rights are limited to the market rate at the time of revision. The borrowers have an option to either accept the revised rate or redeem the loan at par without penalty. The Branch has determined that the contractual cash flows of these loans are SPPI because the option varies the interest rate in a way that is consideration for the time value of money, credit risk, other basic lending risks and costs associated with the principal amount outstanding. Applicability to the Branch The Branch classifies its financial assets into the following measurement category: • Amortized cost Financial assets measured at amortized cost The Branch’s non-derivative financial assets measured at amortized cost comprise cash and cash equivalents, other receivables and due from related party. The Branch measures these assets at amortized cost as its business model is to hold them to collect contractual cash flows. Its contractual terms also gives rise to the receipt of principal and interest on specified dates. These financial assets are not reclassified subsequent to their initial recognition unless the Branch changes its business model for managing these financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. For purchased or originated credit-impaired (POCI) financial assets - assets that are credit impaired at initial recognition, the Branch calculates the credit-adjusted effective interest rate, which is calculated based on the amortised cost of the financial asset instead of its gross carrying amount and incorporates the impact of expected credit losses in estimated cash flows. Reclassifications Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Branch changes its business model for managing financial assets. Financial liabilities Financial liabilities are measured at amortised cost and include deposits from customers and loans payable. Financial liabilities are derecognised when the obligation under the liability is discharged, cancelled or expires.
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