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AFRICAN DAWN Annual Report 2016

Accounting Policies continued Lastly, in terms of the settlement agreement, Mr EA van Heerden would remain as the chief financial officer of the group until the earlier of 31 August 2015 or when a new chief financial officer had been appointed. Mr G Hope has subsequently been appointed as the CFO of Afdawn in 11 January 2016. Elite Two - associate (2014) and subsidiary (2015) In 2011, Elite entered into an agreement with Sandown Capital Proprietary Limited (“Sandown”). Sandown assisted Elite by introducing a R10 m facility to Elite to facilitate the growth of Elite through the special purpose vehicle (SPV), being Elite Two, that was in line with, and benefitted, the business of Elite. Elite (with the assistance of Sandown) had set up Elite Two to make short term salary-deducted personal loans – this is the main business of Elite Two and was funded by Sandown (who earned interest) and managed by Elite (who earned management fees). Elite Two was 100% owned by Sandown. Elite and Sandown were each entitled to 50% of the profits assuming that the total bad debts were 3% or less. To the extent that the bad debts exceeded 3%, Elite would forfeit an equal amount of its share of the profit. However, Elite was not exposed to any further losses. In November 2014, Elite acquired all the shares in Elite Two from Sandown (refer to note 37). A thorough assessment of the requirements in IFRS 10 – Consolidated Financial Statements, and SIC 12 – Consolidation – Special Purpose Entities, revealed that Elite did not control Elite Two prior to this date. Both Sandown and Elite were exposed, or had rights, to variable returns from their involvement with Elite Two. However, on balance, Sandown had more exposure than Elite and had the ability to affect those returns through its power over the investee. Sandown therefore consolidated Elite Two until November 2014. With effect from November 2014, Elite Two has been consolidated by Elite. Elite Two - contingent liabilities At the time that Elite acquired 100% of Elite Two from Sandown, Sandown took over debtors with a value of R14 337 165. The claims against those debtors will be pursued in Sandown’s name. However, the costs of the legal proceedings will be shared equally by Elite and Sandown. If at least R10 million of this amount is collected, Elite will be paid a fee of 50% of the excess. However, Elite is not liable for any amount that is not collected. With respect to the legal claims no legal of R91,554 were incurred in relation to the collection of the debt to 29 February 2016. Litigation is in the process against debtors in Elite Two relating to the settlement of outstanding debt. The company’s lawyers and management consider the likelihood of the action against the debtor being successful as likely, and the case should be resolved within the next two years. Impairment of non-financial assets The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in- use calculations and fair value less costs of disposal. These calculations require the use of estimates and assumptions. It is reasonably possible that certain key assumptions may change, which may then impact our estimations and may then require a material adjustment to the carrying value of assets. The assets that have been tested for impairment are as follows: • Goodwill 2016 and 2015 - refer to note 4 • Intangible assets 2016 and 2015 - refer to note 5 Insurance revenue Certain of the micro finance debtors choose to purchase insurance from Elite and Elite Two. The insurance covers the debtor in the event of death, disability or loss of employment. The Group does not re-insure the debts and therefore bears the risk in such situations. IFRS 4 - Insurance Contracts, is not applicable to the company because the company does not administrator the insurance contracts. All the administration of the contracts is conducted by Guardrisk. Although the Group is not an insurer, the revenue has been described as insurance revenue to differentiate it from other 54 AFRICAN DAWN ANNUAL REPORT 2016


AFRICAN DAWN Annual Report 2016
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