Annual Report 2019

China Merchants China Direct Investments Limited Annual Report 2019 89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 31 December 2019 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial instruments (continued) Financial assets (continued) Impairment of financial assets (continued) Definition of default The Group considers that default has occurred when the instrument is more than 90 days past due, unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. Credit-impaired financial assets The Group considers a financial asset being credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired may include observable data about the following events: (a) significant financial difficulty of the issuer; (b) a breach of contract, such as a default; (c) it is becoming probable that the issuer of the financial asset will enter bankruptcy or other financial reorganisation; or (d) the disappearance of an active market for that financial asset because of financial difficulties. Measurement and recognition of ECL The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information. Estimation of ECL reflects an unbiased and probability weighted amount that is determined with the respective risks of default occurring as the weights. ECL is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the effective interest rate determined at initial recognition. Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on amortised cost of the financial asset. The Group recognises an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount.