TUNG LOK RESTAURANTS (2000) LTD / Annual Report
2016
90
Notes to the financial statements
For the financial year ended 31 March 2016
33.
Financial risks management objectives and policies (cont’d)
(c)
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss
to the group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of
mitigating the risk of financial loss from defaults.
The Group’s credit risk is primarily attributable to its cash and bank balances, trade and other receivables and
advances to associates. Liquid funds are placed with banks with high credit ratings. The credit risk with respect
to the trade receivables is limited as the Group’s revenue is generated mainly from cash and credit card sales.
Where transactions are conducted other than on a cash basis, the Group practises stringent credit review.
Allowance for impairment is made where there is an identified loss event which, based on previous experience, is
evidence of a reduction in the recoverability.
The carrying amount of financial assets recorded in the financial statements, grossed up for any allowances for
losses and the exposure to defaults from financial guarantees disclosed in Note 33(d), represents the Group’s and
the Company’s maximum exposure to credit risk without taking into account the value of any collateral obtained.
Other than the amount due from related parties, the Group has no significant concentration of credit risk. Trade
receivables are spread over a broad base of customers.
Further details of credit risks on trade and other receivables and advances to associates are disclosed in Notes
12 and 13 to the financial statements respectively.
(d)
Liquidity risk management
The Group funds its operations through a mixture of internal funds, bank borrowings and other fund raising
exercises. The Group reviews regularly its liquidity reserves comprising free cash flows from its operations and
undrawn credit facilities from banks.
The Group has a cash pooling system whereby excess liquidity is equalised internally through intercompany
accounts. Depending on the specifics of the funding requirements, funding for its operating subsidiaries may be
either sourced directly from the Group’s bankers or indirectly through the Company.
The Group and the Company are dependent on the availability of future cash flows from the Group’s restaurant
operations and any unutilised credit facilities given by the banks.
During the year ended 31 March 2016, the directors have taken steps to improve the Group’s and Company’s
working capital position and cash inflow from their operating activities.
In respect of the corporate guarantee in Note 30, the maximum amount the Group and Company would be
forced to settle if the full guaranteed amount is claimed by the counterparty is $Nil and $3,310,599 (2015: $Nil
and $5,321,029) respectively. The earliest period that the guarantee could be called is within 1 year (2015: 1 year)
from the end of the reporting period. The Group and Company consider that it is more likely than not that no
amount will be payable under the arrangement.
