Page 31 University of Technology, Jamaica Notes to the Financial Statements 31 March 2020 (expressed in Jamaican dollars unless otherwise indicated) 4. Critical Accounting Estimates and Judgements in Applying Accounting Policies The University makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Critical accounting estimates and assumptions The University makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i) Measurement of the expected credit loss allowance The measurement of the expected credit loss allowance for the financial assets measured at amortised cost requires the use of complex models and significant assumptions about future economic conditions and credit behaviour such as the likelihood of debtors defaulting and the resulting losses. A number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as: • Determining for significant increase in credit risk SICR) • Choosing appropriate models and assumptions for the measurement of ECL • Establishing the number and relative weightings of forward-looking scenarios • Establishing groups of similar financial assets for the purpose of measuring ECL Further details about judgements and estimates made by the University in the above areas is set out in Notes 3 (a) and 2 (f). (ii) Depreciable assets Estimates of the useful life and the residual value of property, plant and equipment are required in order to apply an adequate rate of transferring the economic benefits embodied in these assets in the relevant periods. The University applies a variety of methods in an effort to arrive at these estimates from which actual results may vary. Actual useful life may vary from that which was originally estimated by management. (iii) Post-employment medical care The cost of this benefit depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net periodic cost (income) for postemployment benefit includes the discount rate and the expected rate of increase in medical costs. Any changes in these assumptions will impact the net periodic cost (income) recorded for post-employment benefits and may affect planned funding of the medical plan. The discount rate represents the interest rate that should be used to determine the present value of estimated future cash outflows required to settle the post-employment benefit obligations. In determining the most appropriate rate, the interest rate of high quality Government of Jamaica bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related liability is used. The expected rate of increase of medical cost has been determined by comparing the historical relationship of the actual medical cost increases with the rate of inflation in the respective economy. Past experience has shown that actual medical costs have increased on average by one time the rate of inflation. Other key assumptions for the post-employment benefit cost are based in part on current market conditions. University of Technology, Jamaica 147
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