Page 62 - Learn Africa 2021 Annual Report

Learn Africa Plc
Notes to the Financial Statements (cont’d)

For the year ended 31 March 2021

default events that are possible within the next 12 months (a 12-month ECL). For those credit
exposures for which there has been a significant increase in credit risk since initial recognition, a loss
allowance is required for credit losses expected over the remaining life of the exposure, irrespective
of the timing of the default (a lifetime ECL).

For trade receivables, the Company applies a simplified approach in calculating ECLs. Therefore,
the Company does not track changes in credit risk, but instead recognises a loss allowance based on
lifetime ECLs at each reporting date. The Company has established a provision matrix that is based
on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and
the economic environment, using the loss rate model.

The Company calculates ECLs based on three probability-weighted scenarios to measure the expected
cash shortfalls, discounted at an approximation to the EIR. A cash shortfall is the difference between
the cash flows that are due to an entity in accordance with the contract and the cash flows that the
entity expects to receive.

• PD - The Probability of Default is an estimate of the likelihood of default over a given time
horizon.
• EAD - The Exposure at Default is an estimate of the exposure at a future default date, taking
into account expected changes in the exposure after the reporting date, including repayments of
principal and interest, whether scheduled by contract or otherwise.
• LGD - The Loss Given Default is an estimate of the loss arising in the case where a default
occurs at a given time. It is based on the difference between the contractual cash flows due
and those that the Company would expect to receive, including from the realisation of any
collateral. It is usually expressed as a percentage of the EAD.

When estimating the ECLs, the Company considers three scenarios (a base case, an upside,
and a downside. Each of these is associated with different PDs, EADs and LGDs. In its ECL
models, the Company relies on a broad range of forward-looking information as economic
inputs, such as:

• GDP growth
• Oil price
• Exchange rate
• Inflation rate

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