Mega Bank Annual Report 2017

51 Annual Report 2017 -51- (1) Financial instruments (including derivative instruments) valuation If there is no quoted market price available in an active market for financial instruments, a valuation technique will be adopted to measure the fair value. If there are observable data of similar financial instruments in the market, then the fair value of the underlying financial instruments is estimated by reference to the observable data; otherwise, the fair value is estimated using the appropriate pricing models which are commonly used in the market. The assumptions used in the pricing models should refer to the observable data in the market. However, when those data are not observable from the market and/or the assumptions used in the pricing models are more subjective, the fair value of the financial instruments may be estimated based on historical data or other information. The pricing models used by the Bank and subsidiaries are all evaluated and tested periodically to ensure the outputs may reflect the actual data and market prices. The primary assumptions used in determining the fair values of financial instruments are provided in Note 7(3). The management believes the pricing models and assumptions used have appropriately determined the fair values of financial instruments. ! (2) Loan impairment The Bank and su bsidiaries’ impairment assessments are in compliance with the regulations of regulatory authorities. The Bank and subsidiarie s evaluates cash flows and impairment amounts, through model analysis and individual case assessment, on a monthly basis based on several factors, such as nature of client risk and security coverage. The Bank and subsidiaries recognize impairment loss whenever there is observable evidence showing that impairment has occurred. This evidence includes repayment status of debtor, event that would cause delinquency in payments, and any significantly unfavorable changes in national or local economic circumstance. Future cash flows are estimated primarily based on the length of overdue time, the status of debtors, security coverage, guarantee of external institution and historical experiences. The incidence of impairment and subsequent collectability rate used in impairment evaluations are estimated based on the types of products and historical data. The Bank and subsidiaries review the assumptions and inputs used in impairment evaluations periodically to ensure they are all reasonable. (3) Financial assets-impairment of equity investments The Bank and subsidiaries follow the guidance of IAS 39 to determine whether a financial asset-equity investment is impaired. This determination requires significant judgement. In making this judgement, the Bank and subsidiaries evaluate, among other factors, the duration and extent to which the fair value of an equity investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. If the decline of the fair value of an individual equity investment below cost was considered significant or prolonged, the Bank and subsidiaries would suffer a loss in its financial statements, being the transfer of the accumulated fair value adjustments recognized in other comprehensive income on the impaired available-for-sale financial assets to profit or loss or being the recognition of the impairment loss on the impaired equity investments carried at cost in profit or loss. (4) Post-employment benefit The present value of post-employment benefit obligations are estimated based on several assumptions. Any changes in those assumptions will affect the carrying amounts of post-employment benefit obligations. The assumptions used to determine net pension cost (revenue) comprise discount rate. The Bank and subsidiaries determine the appropriate discount rate at the end of each year, and use the discount rate in calculating the present value of future cash outflow of post-employment benefit obligations. The discount rate is chosen by reference to the rate of government bonds where the currency and maturity date of government bonds are in agreement with those of post-employment benefit obligations. Any changes in these assumptions could significantly impact the carrying amount of defined pension obligations. 6. DETAILS OF SIGNIFICANT ACCOUNTS (1) Cash and cash equivalents December 31, 2017 December 31, 2016 NT$ US$ NT$ Cash on hand and petty cash $ 14,934,684 $ 503,733 $ 15,389,485 Checks for clearance 520,444 17,554 763,191 Due from banks 122,256,412 4,123,598 74,276,076 Subtotal 137,711,540 4,644,885 90,428,752 Less: allowance for doubtful accounts – due from banks ( 1,293 ) ( 44 ) ( 2,206 ) Total $ 137,710,247 $ 4,644,841 $ 90,426,546 (2) Due from the Central Bank and call loans to banks December 31, 2017 NT$ US$ Reserve for deposits-category A $ 11,516,365 $ 388,436 Reserve for deposits-category B 41,465,157 1,398,582 Reserve for deposits-general 281 9 Reserve for deposits-foreign currency 587,701 19,823 Deposits of overseas branches with foreign Central Banks 258,376,119 8,714,791 Interbank settlement fund of Fund Center 6,237,279 210,378 Call loans to banks and bank overdrafts 247,584,160 8,350,788 Import and export loans from banks 958,904 32,343 Participate in interbank financing with risk 2,042,800 68,902 Total $ 568,768,766 $ 19,184,052