Credit Union Annual Report 2022 - Flipbook - Page 48
THE CAYMAN ISLANDS CIVIL SERVICE ASSOCIATION (CICSA)
CO-OPERATIVE CREDIT UNION LIMITED
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 2022
2.4 Summary of accounting policies (continued)
Recognition of income and expenses
Interest income and expense
Interest income and expense are recorded using the effective interest rate (EIR) method for all financial instruments
measured at amortised cost, financial instruments designated at FVPL.
The EIR is the rate that exactly discounts estimated future cash receipts through the expected life of the financial
instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset. When calculating the
EIR, we estimate future cash flows considering all contractual terms of the financial instrument, but not future credit
losses.
The EIR (and therefore, the amortised cost of the asset) is calculated by taking into account any discount or premium on
acquisition, fees and costs that are an integral part of the EIR. Credit Union recognises interest income using a rate of
return that represents the best estimate of a constant rate of return over the expected life of the loan. Interest on loans is
recognised over the term of the loan and is calculated using the effective yield method, interest ceases to be recognised
on loans that are over 90 days in arrears.
Service fees
Service fees arising on cash advances are recognised on a time proportion basis over the period (of up to one month) of
the cash advance.
Financial instruments: Initial recognition
Date of recognition
Financial assets and liabilities, with the exception of mortgage and personal loans and members’ deposits, are initially
recognised on the settlement date, which is the date that an asset is delivered to or by the Credit Union. This includes
regular way trades: purchases or sales of financial assets that require delivery of assets within the time frame generally
established by regulation or convention in the marketplace. Loans and advances to customers are recognised when funds
are transferred to the members’ accounts. Members’ deposits are recognized when funds are transferred to the Credit
Union.
Initial measurement of financial instruments
The classification of financial instruments at initial recognition depends on their contractual terms and the business model
for managing the instruments. Financial instruments are initially measured at their fair value except in the case of financial
assets and financial liabilities recorded at FVPL, transaction costs are added to, or subtracted from, this amount. Trade
receivables are measured at the transaction price. When the fair value of financial instruments at initial recognition diffe rs
from the transaction price, Credit Union accounts for the Day 1 profit or loss, as described below.
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