Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698058999249.pdf (Georgia)
JSC MICROFINANCE ORGANISATION EURO CREDIT FINANCIAL STATEMENTS Together with Independent Auditors’ Report For the year ended 31 December 2021 CONTENTS: INDEPENDENT AUDITOR’S REPORT ................................................................................................ 3 FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION ...................................................................................................... 5 STATEMENT OF COMPREHENSIVE INCOME .................................................................................................. 6 STATEMENT OF CHANGES IN EQUITY ....................................................................................................... 7 STATEMENT OF CASH FLOWS .............................................................................................................. 8 NOTES TO THE FINANCIAL STATEMENTS 1.
General information .......................................................................................................... 9 2.

3.

4.

5.

6.

7.

8.

9.
Basis of preparation .......................................................................................................... 9 Critical accounting estimates and judgements .......................................................................... 11 Financial instruments – risk management ................................................................................ 12 Transactions with owners .................................................................................................. 15 Adjustments of prior period errors ........................................................................................ 15 Cash and cash equivalents ................................................................................................. 16 Loans to customers .......................................................................................................... 16 Tax asset/liability ........................................................................................................... 18 10.
Taxation ...................................................................................................................... 19 11.

Right-of-use assets and lease liabilities .................................................................................. 20 12.

Property and equipment .................................................................................................... 21 13.
Borrowings and subordinated borrowings ................................................................................ 21 14.

Other income ................................................................................................................. 22 15.

Other operating expenses .................................................................................................. 23 16.
Commitments and contingencies .......................................................................................... 23 17.

Transactions with related parties ......................................................................................... 24 18.

Events after the reporting period ......................................................................................... 25 19.
Summary of significant accounting policies .............................................................................. 25 Page 2 of 34 Tel: +995 32 2545 845 Tel: +995 32 2188 188 www.bdo.ge 2 Tarkhnishvili Street Vere Business Center 0179 Tbilisi, Georgia INDEPENDENT AUDITOR’S REPORT To the Shareholders and Management of JSC MICROFINANCE ORGANISATION EURO CREDIT Opinion We have audited the financial statements of JSC MICROFINANCE ORGANISATION EURO CREDIT (hereinafter - the Organisation), which comprise the statement of financial position as at 31 December 2021, and the statement of comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Organisation as at 31 December 2021 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs).
Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the Organisation in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Georgia, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Organisation’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Organisation or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Organisation’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

BDO Audit LLC, a Georgian Limited Liability Company (ID 205145403), is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit.

We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organisation’s internal control • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Organisation’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion.

Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.

However, future events or conditions may cause the Organisation to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
The engagement partner responsible for the audit resulting in this independent auditor’s report is: Ivane Zhuzhunashvili (Registration # SARAS-A-720718) For and on behalf of BDO Audit LLC Tbilisi, Georgia 15 June 2022 JSC MFO EURO CREDIT STATEMENT OF FINANCIAL POSITION As at 31 December 2021 (In Georgian Lari) Assets Cash and cash equivalents Loans to customers Other assets Tax asset Deferred tax asset Right-of-use assets Property and equipment Total assets Liabilities Other liabilities Tax liability Lease liabilities Borrowed funds Subordinated borrowings Total liabilities Equity Share capital Retained earnings Total equity Notes 31 December 2021 31 December 2020* 1 January 2020* 4,266,053 46,324,013 192,898 - 406 2,185,582 393,362 1,686,981 33,330,827 184,265 213,815 902,237 3,047,528 465,040 2,772,874 33,846,448 212,492 816,459 596,942 3,465,672 528,592 53,362,314 39,830,693 42,239,479 269,430 779,460 2,168,672 8,707,190 601,434 1,703,427 - 3,177,814 - - 3,184,554 7,946,939 17,339,867 19,083,694 12,213,304 29,264,619 22,862,942 25,048,224 1,000,000 23,097,695 1,000,000 15,967,751 1,000,000 16,191,255 24,097,695 16,967,751 17,191,255 Total liabilities and equity 53,362,314 39,830,693 42,239,479 (*) – Restated, for additional information, please refer to Note 6.
The financial statements for the year ended 31 December 2021 were approved on behalf of the management on 15 June 2022 by: Director Mikheil Nonikashvili Financial Manager Guja Tsintsadze The notes on pages 9-34 form an integral part of these financial statements.
Page 5 of 34 JSC MFO EURO CREDIT STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2021 (In Georgian Lari) Interest income Interest expense Net interest income before impairment Loan impairment charge Net interest income Other income Salaries and other employee benefits Other operating expenses Depreciation Net gain/(loss) from exchange rate differences Profit before income tax Income tax expense Total comprehensive income (*) – Restated, for additional information, please refer to Note 6.
Notes 2021 2020* 15,870,856 13,465,393 (3,199,350) (3,136,946) 12,671,506 10,328,447 8 (2,122,766) (332,974) 10,548,740 9,995,473 14 15 3,397,238 2,463,386 (4,065,974) (3,505,255) (5,080,827) (3,232,533) (841,852) (897,600) 517,262 (2,621,479) 4,474,587 2,201,992 10 (1,173,046) (12,237) 3,301,541 2,189,755 The notes on pages 9-34 form an integral part of these financial statements.
Page 6 of 34 JSC MFO EURO CREDIT STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2021 (In Georgian Lari) At 31 December 2019* Share capital 1,000,000 Retained earnings 16,191,255 Total 17,191,255 Transactions with owners (net of tax) (Note 5, 6) Total comprehensive income for the year - - (2,413,259) (2,413,259) 2,189,755 2,189,755 At 31 December 2020* 1,000,000 15,967,751 16,967,751 Transactions with owners (Note 5) Total comprehensive income for the year - - 3,828,403 3,301,541 3,828,403 3,301,541 At 31 December 2021 1,000,000 23,097,695 24,097,695 (*) – Restated, for additional information, please refer to Note 6.
The notes on pages 9-34 form an integral part of these financial statements.
Page 7 of 34 JSC MFO EURO CREDIT STATEMENT OF CASH FLOWS For the year ended 31 December 2021 (In Georgian Lari) CASH FLOWS FROM OPERATING ACTIVITIES: Profit before income tax Adjustments for: Interest income Interest expense Loan impairment charge Depreciation and amortisation Net gain on foreign exchange operations Cash outflow from operating activities before changes in operating assets and liabilities Changes in operating assets and liabilities: Loans to customers Other assets Tax assets/liabilities Other liabilities Net cash inflow/(outflow) from operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment Net cash outflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings Repayment of borrowings Lease liabilities Transactions with owners 2021 2020* 4,474,587 2,201,992 (1,357,249) (1,439,410) 2,122,766 841,852 (517,262) (1,852,283) 691,794 332,974 897,600 2,621,479 4,125,284 4,893,556 (13,765,937) 2,061,684 (32,728) 32,266 (318,439) (9,959,554) 37,742 506,442 (165,825) 7,333,599 (45,505) (45,505) (84,358) (84,358) 14,791,406 (1,195,496) (952,022) - 1,100,000 (8,352,162) (871,989) (370,341) Net cash inflow/(outflow) from financing activities 12,643,888 (8,494,492) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of exchange rate fluctuations on the cash and cash equivalents held in foreign currencies 2,638,829 1,686,981 (1,245,251) 2,772,874 (59,757) 159,358 Cash and cash
 equivalents at the end of the year 4,266,053 1,686,981 (*) – Restated, for additional information, please refer to Note 6.
Interest received by the Organisation during the year ended 31 December 2021 and 2020 amounted to GEL14,513,607 and GEL11,613,110, respectively.

Interest paid by the Organisation during the year ended 31 December 2021 and 2020 amounted to GEL4,611,075 and GEL2,445,152, respectively.

The notes on pages 9-34 form an integral part of these financial statements.

Page 8 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 1.
GENERAL INFORMATION ORGANISATION JSC MFO EURO CREDIT is a Joint Stock Company (the “Organisation”) which was registered on 22 November 2011 at tax department office in Tbilisi, Georgia with the registration number 404919102.

The Organisation conducts its business under the Law of Microfinance Activity and is supervised by the National Bank of Georgia (“NBG”).

As its principal business activity, the Organisation provides micro and small loans (secured by the automobiles) to customers in Georgia.
The Organisation’s governing body is the general meeting of shareholders.

Daily activities in each branch are supervised by the branch manager appointed by the Organisation’s supervisory board and nominated by the CEO.

The Organisation had 11 branches in major cities of Georgia as at 31 December 2021.
The shareholders of the organisation as at 31 December 2021 and 2020 can be presented as follows: Shareholders ZUK CHINA STONE WORKS LIMITED D. Mody Properties LTD Grenikasi Yosef Reuven Benish Meni Duenias Oren Abraham Duenias Eyal 31 December 2021 75.51% 31 December 2020 75.51% 7.99% 6.5% 5% 3% 2% 7.99% 6.5% 5% 3% 2% 100% 100% Moshe Zuk was the ultimate controlling party of the Organisation as at 31 December 2021 and 2020.
The Organisation’s office is located at 11 Saakadze street, 2nd pass, Tbilisi, Georgia.

2.

BASIS OF PREPARATION STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards as issued by the International Accounting Standards Board (IASB) and Interpretations (collectively IFRSs).

The Organisation maintains its records and prepares financial statements in Georgian Lari (GEL).
Amounts in the financial statements are presented without rounding, unless otherwise stated.

The reporting period for the Organisation is the calendar year from January 1 to December 31.

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates.

It also requires management to exercise judgment in applying The Organisation's accounting policies.
The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed in Note 3.

The principal accounting policies adopted in the preparation of the financial statements are set in the Note 19.

BASIS OF MEASUREMENT These financial statements have been prepared under the historical cost basis.

Page 9 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 2.
BASIS OF PREPARATION (CONTINUED) GOING CONCERN In determining the appropriateness of the basis of preparation, the management of the Organisation has considered the impact of the COVID-19 pandemic on the position of the Organisation at 31 December 2021 and its operations in the future.

The management believes that Pandemic has not had impact on the Organisation’s going concern despite its effect on operations, cash flows and financial position of the Organisation.
These financial statements have been prepared on the assumption that the Organisation is a going concern and will continue its operations for the foreseeable future.

The management and shareholder have the intention to further develop the business of the Organisation in Georgia.

Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Organisation’s ability to continue as a going concern.
The management believes that the going concern assumption is appropriate for the Organisation.

ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS a) New standards, interpretations and amendments effective from 1 January 2021 There have been adopted some new standards and interpretations.
Neither of interpretations and amendments have material effect, on the Company’s financial statements for the year ended 31 December 2021: - - Interest Rate Benchmark Reform – IBOR ‘phase 2’ (Amendments to IFRS 9, IAS 39 and IFRS 7 and IFRS 16); COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16) b) New standards, interpretations and amendments not yet effective There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Company has decided not to adopt early.
The following amendments are effective for the period beginning 1 January 2022: - - - - Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37); Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16); Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); References to Conceptual Framework (Amendments to IFRS 3).
The following amendments are effective for the period beginning 1 January 2023: - - - Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2); Definition of Accounting Estimates (Amendments to IAS 8); Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).

In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current.
These amendments clarify that current or non-current classification is based on whether the Organisation has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period.
The amendments also clarify that ‘settlement’ includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument.

The amendments were originally effective for annual reporting periods beginning on or after 1 January 2022.
However, in May 2020, the effective date was deferred to annual reporting periods beginning on or after 1 January 2023.

The Organisation is currently assessing the possible impact of the new standard on its financial statements.

The Organisation does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the financial statements.
Other The Organisation does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the financial statements.

Page 10 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 3.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Organisation makes certain estimates and assumptions regarding the future.
Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In the future, actual experience may deviate from these estimates and assumptions.

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.
MEASUREMENT OF EXPECTED CREDIT LOSSES The following are key estimations that the management have used in the process of applying the Organisation’s accounting policies and that have the most significant effect on the loss allowances for expected credit losses: • • • Probability of default: PD constitutes a key input in measuring ECL.

PD is an estimate of the likelihood of default over a given time horizon, the calculation of which includes historical data, assumptions and expectations of future conditions.
Loss Given Default: LGD is an estimate of the loss arising on default.

It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, taking into account cash flows from collateral and integral credit enhancements.
Establishing forward-looking scenarios: When measuring ECL the Organisation uses reasonable and supportable forward-looking information, which is based on assumptions for the future movement of different economic drivers and how these drivers will affect each other.
LEASE TERM, INCREMENTAL BORROWING RATE (IBR) AND LEASE PAYMENTS The lease term is defined as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease (including the renewal option implied through customary business practices) if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease if it is reasonably certain not to be exercised.
Management applies judgement to determine the lease term when lease contracts include renewal options that are exercisable only by the Organisation.

It considers all relevant factors that create an economic incentive to exercise the renewal option.
After the commencement date, the Organisation reassesses the lease term if there is a significant event or a change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew, or to terminate the lease.

The management applies judgement to estimate the IBR.

The management uses an observable information to determine the base rate and adjustments for the lessee specific factors and the asset factors (the adjustment for security).
In Georgia it is customary that lease renewal option is implied through customary business practices and not all renewal options are documented within the lease agreements.

In such cases, the initial measurement of the lease liability assumes the payments for renewal periods equal to the contractual amount and will remain unchanged throughout the lease term.

TAXATION During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.
As a result, the Organisation recognizes tax liabilities based on estimates of whether additional taxes and interest will be due.

These tax liabilities are recognized when, despite the Organisation’s belief that its tax return positions are supportable, the Organisation believes that certain positions are likely to be challenged and may not be fully sustained upon review by tax authorities.

As a result, the Organisation minimizes the risks related to this fact.
The Organisation believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law.

This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.

Page 11 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 4.
FINANCIAL INSTRUMENTS – RISK MANAGEMENT As a financial institution, the Organisation is exposed to risks that arise from its use of financial instruments.

This note describes the Organisation's objectives, policies and processes for managing those risks and the methods used to measure them.

Further quantitative information in respect of these risks is presented throughout these financial statements.
Financial assets and financial liabilities that are liquid or have a short-term maturity it is assumed that the carrying amounts approximate to their fair value.
GENERAL OBJECTIVES, POLICIES AND PROCESSES The management has overall responsibility for the determination of the Organisation’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Organisation’s finance function.
The overall objective of the management is to set polices that seek to reduce risks as far as possible without unduly affecting the Organisation's competitiveness and flexibility.

Further details regarding these policies are set out below.
Through its operations, the Organisation is exposed to the following financial risks: • • Credit risk Liquidity risk • Market risk: - - Currency risk Interest rate risk CREDIT RISK Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

Exposure to credit risk arises as a result of the lending and other transactions with counterparties giving rise to financial assets.
The carrying amount of financial assets represents the maximum credit exposure.

The maximum exposure to credit risk at the reporting dates was: Cash and cash equivalents (excluding cash on hand) Loans to customers 31 December 2021 31 December 2020 4,266,053 46,324,013 1,683,631 33,330,827 50,590,066 35,014,458 Probability of default (PD) PD estimates are estimates at a certain date, which are calculated based on statistical rating models.
If a counterparty or exposure migrates between ratings’ classes, then this will lead to a change in the estimate of the associated PD.

PDs are estimated considering the contractual maturities of exposures and estimated prepayment rates.

PDs are calculated based on three-year average and then 1-year and lifetime PDs are derived by extrapolating using migration matrices.
As at December 31, 2021, 10% increase/(decrease) in average PD results in ECL increase/ (decrease) by 2.3% that represents GEL323,436/ (323,436).

As at December 31, 2020, 10% increase/(decrease) in average PD results in ECL increase/ (decrease) by 2% that represents GEL267,064/ (267,064).

Page 12 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 4.
FINANCIAL INSTRUMENTS – RISK MANAGEMENT (CONTINUED) Loss given default (LGD) LGD is the magnitude of the likely loss if there is a default.

The Organisation estimates LGD parameters based on the history of recovery rates of claims against defaulted counterparties.

The LGD model considers cash recoveries only.

LGD is calculated on a discounted cash flow basis using the effective interest rate as the discounting factor.
As at December 31, 2021, 10% increase/(decrease) in average LGD results in ECL increase/ (decrease) by 10% that represents GEL 1,394,604/ (1,394,604).

As at December 31, 2020, 10% increase/(decrease) in average LGD results in ECL increase/ (decrease) by 10% that represents 1,335,322/ (1,335,322).

LIQUIDITY RISK Liquidity risk refers to the availability of sufficient funds to meet loan repayments and other financial commitments associated with financial instruments as they actually fall due.
In order to manage liquidity risk, the Organisation performs regular monitoring of future expected cash flows, which is a part of assets/liabilities management process.

An analysis of the liquidity and interest rate risks is presented in the following tables.

The presentation below is based upon the information provided by key management personnel of the Organisation.
Liquidity of financial liabilities as at 31 December 2021 can be presented as follows: Financial liabilities Other liabilities Lease liabilities Borrowed funds Subordinated Borrowings Up to 1 year 269,430 925,342 4,437,076 2,031,468 1 year to 5 years - 1,462,384 5,820,243 23,048,212 Total 269,430 2,387,726 10,257,319 25,079,680 7,663,316 30,330,839 37,994,155 Liquidity of financial liabilities as at 31 December 2020 can be presented as follows: Financial liabilities Other liabilities Lease liabilities Subordinated Borrowings Up to 1 year 601,434 1,023,848 4,205,263 1 year to 5 years - 2,617,264 15,503,590 5,830,545 18,120,854 Over 5 years - 20,479 6,011,671 6,032,150 Total 601,434 3,661,591 25,720,524 29,983,549 MARKET RISK Market risk is the risk that the fair value of a financial instrument will decrease because of changes in market factors.
Market risk arises from the Organisation’s use of interest bearing and foreign currency financial instruments.

It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates (currency risk) and interest rates (interest rate risk).

- CURRENCY RISK Currency risk is defined as the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.
The Organisation is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows.

Page 13 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 4.
FINANCIAL INSTRUMENTS – RISK MANAGEMENT (CONTINUED) Currency risk of financial assets and liabilities as at 31 December 2021 can be presented as follows: Financial assets Cash and cash equivalents Loans to customers Total financial assets Financial liabilities Other liabilities Lease liabilities Borrowed funds Subordinated Borrowings Total financial liabilities GEL 4,190,571 46,276,810 50,467,381 269,430 326,831 3,823,931 - 4,420,192 USD 75,482 47,203 122,685 - 1,841,841 4,883,259 17,339,867 24,064,967 Open balance sheet position 46,047,189 (23,942,282) Currency risk of financial assets and liabilities as at 31 December 2020 can be presented as follows: Financial assets Cash and cash equivalents Loans to customers Total financial assets Financial liabilities Other liabilities Lease liabilities Subordinated Borrowings Total financial liabilities GEL 681,176 33,233,227 33,914,403 USD 1,005,805 97,600 1,103,405 349,243 364,941 - 252,191 2,812,873 14,485,069 714,184 17,550,133 Open balance sheet position 33,200,219 (16,446,728) The following table details the Organisation’s sensitivity to 20% increase and decrease in the foreign currency exchange rates against GEL and represents management’s assessment of the possible change in foreign currency exchange rates.
The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the end of the year for 20% change in foreign currency rates.
Impact on the statement of comprehensive income and equity based on financial instrument values as at 31 December 2021 and 2020 can be presented as follows: Sensitivity of the fluctuation of the market exchange rates 20% increase 20% decrease - INTEREST RATE RISK (GEL / USD) 2021 (4,788,456) 4,788,456 2020 (3,289,346) 3,289,346 Interest rate risk arises from potential changes in market interest rates that can adversely affect the fair values of the financial assets and liabilities of the Organisation.
This risk can arise from maturity mismatches of assets and liabilities, as well as from the re-pricing characteristics of such assets and liabilities.

Organisation's all interest-bearing assets and liabilities are at fixed interest rates.

Therefore, market interest rate fluctuations do not affect Organisation's income or expenses.

Page 14 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 4.
FINANCIAL INSTRUMENTS – RISK MANAGEMENT (CONTINUED) MANAGEMENT OF CAPITAL The Organisation's objectives when maintaining capital are: • To safeguard the Organisation's ability to continue as a going concern, so that it can continue to operate sufficiently; and • To comply with the capital requirements set by NBG.

• To provide an adequate return to shareholders.

The Organisation sets the amount of capital it requires in proportion to risk.
The Organisation manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

5.

TRANSACTIONS WITH OWNERS In 2020 the Organisation received intermediary service from Zuk China Stone Works Limited (Service provider).

The service provider has experience in attracting investors for investing in financial companies such as the Organisation.
At the same time Service provider is holding the majority of shares in the Organisation.

The service provider took an obligation to research investors for the Organisation, in order to raise funds for financing purposes.

In 2020 the Organisation did not rise funds through the service.

Service fee amounted GEL370,341.

The Organisation has borrowings and subordinated borrowings from related parties with interest rate of 24% (see note 13).
As of 1 October 2021, the Organisation negotiated reduced interest rate (12%) based on market conditions.

The interest rate change resulted in a modification, as the effect of the change exceeded 10% of amortized balance of the borrowings at that time.

Thus, according to IFRS 9 requirements the borrowings were derecognised and new financial liabilities were generated.

The Organisation also made retrospective adjustments on initial recognition of the borrowings according to fair rate (see note 6).
The effect of modification is presented in the statement of changes in equity since.

6.
ADJUSTMENTS OF PRIOR PERIOD ERRORS The Organisation made the following adjustments in prior periods statement of financial position and statement of comprehensive income to be in compliance with IFRS 9 requirements regarding the initial recognition of financial instruments with fair value and subsequent measurement with amortized cost: Statement of financial position Deferred tax asset Subordinated borrowings Retained earnings Statement of comprehensive income 31 December 2020 As stated Adjustments 31 December 2020 As restated 212,443 14,485,069 19,876,582 689,794 4,598,625 (3,908,831) 902,237 19,083,694 15,967,751 Interest expense (3,925,659) 788,713 (3,136,946) Statement of financial position Deferred tax asset Subordinated borrowings Retained earnings 31 December 2019 As stated Adjustments 31 December 2019 As restated 128,478 9,090,214 18,845,881 468,464 3,123,090 (2,654,626) 596,942 12,213,304 16,191,255 Page 15 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 7.
CASH AND CASH EQUIVALENTS Cash on hand Cash in bank in Georgian Lari Cash in bank in foreign currencies Cash in transit Cash and cash equivalents distribution by currency is disclosed in Note 4.

8.
LOANS TO CUSTOMERS Gross loans to customers Less: allowance for impairment losses Gross loans to customers 31 December 2021 31 December 2020 - 3,742,982 75,622 447,449 4,266,053 3,350 322,875 1,005,805 354,951 1,686,981 31 December 2021 60,270,051 31 December 2020 46,360,115 (13,946,038) (13,029,288) 46,324,013 33,330,827 Analysis by credit quality of the originated loans to customers according to the agreement as at 31 December 2021: Credit quality of loans to customers Gross Loan ECL Net Loan 31 December 2021 Loans without individual sign of impairment less than 30 days overdue 30 to 60 days overdue 60 to 90 days overdue Over 90 days Restructured (Less than 90) Restructured (Over 90 Days) 40,485,665 1,943,961 708,755 468,923 (5,096,521) (300,515) (195,914) (185,122) 35,389,144 1,643,446 512,841 283,801 16,348,529 (8,062,760) 8,285,769 233,456 80,762 (52,289) (52,917) 181,167 27,845 60,270,051 (13,946,038) 46,324,013 Analysis by credit quality of the originated loans to customers according to the agreement as at 31 December 2020: Credit quality of loans to customers Gross Loan ECL Net Loan 31 December 2020 Loans without individual sign of impairment less than 30 days overdue 30 to 60 days overdue 60 to 90 days overdue Over 90 days Restructured (Less than 90) Restructured (Over 90 Days) 25,158,793 1,364,610 487,006 330,879 12,814,957 1,061,444 5,142,426 (1,962,414) (228,983) (141,529) (136,256) (7,268,904) (237,199) (3,054,003) 23,196,379 1,135,627 345,477 194,623 5,546,053 824,245 2,088,423 46,360,115
 (13,029,288) 33,330,827 The Organisation has established internal policy for issuing collateralised loans.
Loans are pledged with vehicles.

Requirements for collateral are determined by using LTV (Loan to Value) ratio (Maximum ratio is 85% as of NBG).

Page 16 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 8.
LOANS TO CUSTOMERS (CONTINUED) Movements in the loan impairment allowance for the year ended 31 December 2021 are as follows: At 31 December 2020 Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 ECL for new generated loans Repaid Loans Write off for the year Changes due to change in credit-risk At 31 December 2021 Stage 1 12-month ECL 2,191,398 12,056 (86,263) (359,645) 3,484,811 (1,652,950) (8,744) (1,030,314) 2,550,349 Stage 2 Lifetime ECL- not credit-impaired Stage 3 Lifetime ECL- credit-impaired Total 512,846 (12,056) 86,263 (138,294) - (313,634) (29,564) 577,476 683,037 10,325,044 13,029,288 - - 497,939 - (795,894) (1,044,015) - - - 3,484,811 (2,762,478) (1,082,323) 1,729,578 1,276,740 10,712,652 13,946,038 Respective movements in the gross carrying amounts of loans to customers for the year ended 31 December 2021 are as follows: Stage 1 12-month ECL 26,523,403 Stage 2 Lifetime ECL- not credit-impaired 1,874,506 Stage 3 Lifetime ECL- credit-impaired 17,962,206 At 31 December 2020 Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 New generated loans Transfer to Stage 2 Transfer to Stage 3 Net changes in interest accrual Repaid Loans Write off for the year Foreign exchange and other movements At 31 December 2021 168,611 (189,445) (550,702) 43,532,675 (1,207,026) (890,556) 574,504 (25,534,948) (43,682) 45,965 (168,611) 189,445 (230,467) - 1,207,026 - 42,499 (1,484,843) (68,367) 42,396 Total 46,360,115 - - - 43,532,675 - - - - 781,169 - - 890,556 (265,570) 351,433 (1,919,133) (1,035,952)
 (28,938,924) (1,148,001) 24,392 112,753 42,428,799 1,403,584 16,437,668 60,270,051 Page 17 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 8.
LOANS TO CUSTOMERS (CONTINUED) Movements in the loan impairment allowance for the year ended 31 December 2020 are as follows: At 31 December 2019 Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 ECL for new loans Repaid Loans Write off for the year Changes due to change in credit-risk At 31 December 2020 Stage 1 12-month ECL 3,431,292 Stage 2 Lifetime ECL- not credit-impaired Stage 3 Lifetime ECL- credit-impaired Total 444,741 9,477,192 13,353,225 - (260,823) (1,103,751) 2,570,768 (2,235,201) - (210,887) 2,191,398 - 260,823 (475,838) - (182,458) - 465,578 512,846 - - 1,579,589 - (713,818) (371,709) 353,790 - - - 2,570,768 (3,131,477) (371,709) 608,481 10,325,044 13,029,288 Respective movements in the gross carrying amounts of loans to customers for the year ended 31 December 2021 are as follows: Stage 1 12-month ECL At 31 December 2019 30,258,638 Stage 2 Lifetime ECL- not credit-impaired 1,609,977 Stage 3 Lifetime ECL- credit-impaired 15,343,484 (25,590) 1,020,602 (787,021) - 792,661 - 35,845 (7,345) - 2,651,754 - - 802,764 868,112 Total 47,212,099 - - - 27,731,213 - - 1,245,237 (1,743,712) (32,958) (1,249,190) (29,556,069) (282,870) (369,548) 1,004,702 (164,503) 97,183 32,935 (1,020,602) (1,864,733) 27,731,213 (792,661) (802,764) 341,280 (26,563,167) (53,720) (743,016) 26,523,403 1,874,506 17,962,206 46,360,115 Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 New generated loans Transfer to Stage 2 Transfer to Stage 3 Net changes in interest accrual Repaid Loans Write off for the year
 Foreign exchange and other movements At 31 December 2020 9.
TAX ASSET/LIABILITY According to the Georgian Tax Legislation, the legal entities should pay taxes on unified treasury code applicable for all taxes.

As a result, as at 31 December 2021 and 2020 the Organisation presents tax assets and liabilities on net bases.

Page 18 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 10.
TAXATION Temporary differences at a rate of 15% due to: Loans to customers At 31 December 2019 732,941 Credited / (charged) to the P&L (490,933) Credited / (charged) to equity - Property and equipment (79,289) Right-of-use Assets (519,851) 9,533 62,722 (1,011) - - - - - - 221,330 - 477,683 20,648 468,464 229,287 (229,287) Lease liabilities Other liabilities Subordinated borrowings Tax loss carry forward Deferred tax (liabilities)/ assets Unrecognised Temporary differences At 31 December 2020 242,008 (69,756) (457,129) 476,672 20,648 689,794 - Credited / (charged) to the P&L (221,489) Credited / (charged) to equity - 52,179 129,292 (151,371) (20,648) - - - - - - (689,794) - At 31 December 2021 20,519 (17,577) (327,837) 325,301 - - - 1,329,883 (648,976) 221,330 902,237 (212,037) (689,794) 406 Loans to customers (732,941) Net deferred tax asset 596,942 732,941 83,965 - - - - 221,330 902,237 (212,037) (689,794) - 406 On 12 June 2018, an amendment to the current corporate taxation model applicable to financial institutions, including microfinance organisations, became effective.
The change implies a zero corporate tax rate on retained earnings and a 15% corporate tax rate on distributed earnings starting from 1 January 2023, instead of 1 January 2019 as previously enacted in 2016.

The change had an immediate impact on deferred tax asset and deferred tax liability balances attributable to previously recognised temporary differences arising from prior periods.
The Organization has calculated the portion of deferred taxes that is expected to be realised before 1 January 2023 for financial businesses and has recognised the respective portion of deferred tax assets and liabilities.

During the transitional period, the Organization will only continue to recognise the portion of deferred tax assets and liabilities arising on items charged or credited to the income statement during the same period, which it expects to be realised before 1 January 2023.
Income tax expense comprises the following: Current tax Effect of temporary differences Income tax expense 2021 (961,009) (212,037) (1,173,046) 2020 (96,202) 83,965 (12,237) The tax effects of the movements in temporary differences recorded at the rate of 15% are as follows: Profit before income tax Applicable tax rate Theoretical income tax Effect of previously unrecognised tax asset Effect of permanent differences Income tax expense 2021 2020 4,474,587 1,413,279 15% (671,188) - (501,858) (1,173,046) 15% (211,992) 732,941 (533,186) (12,237) Page 19 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 11.
RIGHT-OF-USE ASSETS AND LEASE LIABILITIES The Organisation’s lease agreements, for which right of use assets are recognised, include leases to the head office and branches.

The renewal option is implied through customary business practices.

Remaining lease terms are defined as up to five years.

Lease payments for these spaces are fixed over the lease term and are denominated in USD and GEL.
Incremental borrowing rate used by Organisation in accounting for leases are 7.21% and 13.5% annually for each lease, according to their currencies.

The Organisation has no borrowings received in the current or comparable period with similar currency, maturity and terms.

IBR was determined based on observable market data for a similar sector.
Right-of-use assets can be presented as follows: At the beginning of the year New leases Lease termination Modification Depreciation At the end of the year Lease liabilities can be presented as follows: At the beginning of the year New leases Interest expense Lease payments Rent concession* Modification Lease termination Foreign exchange movements At the end of the year 2021 3,047,528 26,076 (37,484) (125,869) (724,669) 2,185,582 2021 3,177,814 26,076 207,360 (952,022) - (159,622) (27,685) (103,249) 2,168,672 2020 3,465,672 331,546 - - (749,690) 3,047,528 2020 3,184,554 331,546 261,703 (871,989) (56,919) - - 328,919 3,177,814 *The Organisation has elected to apply the practical expedient introduced by the amendments to IFRS 16 to all rent concessions that satisfy the criteria.
Substantially all of the rent concessions entered into during year satisfy the criteria to apply the practical expedient.

The application of the practical expedient has resulted in the reduction of total lease liabilities of GEL56,919.

The effect of this reduction has been recorded in profit or loss in the period in which the event or condition that triggers those payments occurred.
Page 20 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 12.
PROPERTY AND EQUIPMENT Historical cost At 1 January 2020 Additions At 31 December 2020 Additions At 31 December 2021 Accumulated depreciation At 1 January 2020 Depreciation charge for the year At 31 December 2020 Depreciation charge for the year At 31 December 2021 Net book value At 31 December 2020 At 31 December 2021 Office equipment 393,171 Leasehold improvements 271,091 17,156 410,327 29,605 439,932 (98,833) (103,571) (202,404) (71,494) (273,898) 22,867 293,958 6,844 300,802 (52,470) (42,228) (94,698) (42,943) (137,641) Other 17,773 44,335 62,108 9,056 71,164 (2,140) (2,111) (4,251) (2,746) (6,997) Total 682,035 84,358 766,393 45,505 811,898 (153,443) (147,910) (301,353) (117,183) (418,536) 207,923 166,034 199,260 163,161 57,857 64,167 465,040 393,362 13.
BORROWINGS AND SUBORDINATED BORROWINGS Borrowed funds as at 31 December 2021 can be presented as follows: PASHA Bank Georgia Interest rate NBG rate + 7.5% Eurocredit + 12% Maturity date 2-Jun-23 26-Jan-24 Currency GEL USD Originated borrowings 3,777,514 4,865,673 8,643,187 Borrowed funds as at 31 December 2019 can be presented as follows: Euro credit+ TOM HOLDINGS LTD Ronni Biram investments ltd WGH Georgia investments LTD Interest rate 24% 12% 12% 20% Maturity date 3-Feb-20 31-Jul-20 31-Jul-20 On demand Currency USD USD USD USD Originated borrowings 1,412,712 1,433,490 1,433,910 Accrued Interest 46,417 17,586 64,003 Accrued Interest 7,431 - - 3,649,398 9,998 7,929,510 17,429 Subordinated borrowings for 31 December 2021 can be presented as follows: Eurocredit(subord 1) Eurocredit(subord 2) Eurocredit(subord 3) Eurocredit + (Subordinated #4) Interest rate 12% 12% 12% 12% Maturity date 1-Dec-24 1-Dec-24 2-Dec-26 1-Jun-26 Currency USD USD USD USD Originated borrowings 4,053,844 4,053,844 4,657,359 4,508,156 17,273,203 Accrued Interest 15,993 15,993 18,374 16,304 66,664 Page 21 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 13.
BORROWINGS AND SUBORDINATED BORROWINGS (CONTINUED) Subordinated borrowings for 31 December 2020 can be presented as follows: Eurocredit(subord 1) Eurocredit(subord 2) Eurocredit(subord 3) Interest rate 24% 24% 24% Maturity date 1-Dec-24 1-Dec-24 2-Dec-26 Currency USD USD USD Originated borrowings 5,561,956 5,561,956 6,977,410 18,101,322 Accrued Interest 87,407 87,407 807,558 982,372 Subordinated borrowings for 31 December 2019 can be presented as follows: Eurocredit(subord 1) Eurocredit(subord 2) Interest rate 24% 24% Maturity date 1-Dec-24 1-Dec-24 Currency USD USD 31 December 2019 Originated borrowings 5,314,518 5,314,518 10,629,036 Accrued Interest 792,134 792,134 1,584,268 The principal of the Subordinated borrowings should be repaid at the end of the maturity date, interest on the loans is payable on a monthly basis.
Changes in borrowings and subordinated borrowings arising from financing activities, including both changes arising from cash flows and non-cash changes can be presented as follows: At the beginning of the year Cash flows Non-cash flows: Interest accruing in period Transfer from other liabilities* Effects of foreign exchange Effects of modification (note 6) 2021 19,083,694 8,984,931 2,991,990 - (495,361) (4,518,197) 2020 20,150,736 (9,697,697) 2,875,243 1,036,000 2,455,164 2,264,248 2019 21,583,226 (10,150,288) 3,662,432 - 1,941,783 3,123,090 At the end of the year 26,047,057 19,083,694 20,160,243 * Short-term Lease payable to Euro Credit + amounting GEL 1,036,000 was transferred to subordinated borrowings.
14.

OTHER INCOME Penalties and fines Income from EP Commission Rent concession Other 2021 2,801,041 543,227 - 52,970 2020 2,130,012 224,253 56,919 52,202 3,397,238 2,463,386 Page 22 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 15.
OTHER OPERATING EXPENSES Marketing cost IT Consulting Service Legal Expenses Debt Collection Expenseს Pledge expenses *Consulting and other professional services Communication Application inspection expenses Utilities Fuel Security Office expense Business trips Bank fees Repossessed cars expenses Other 2021 (1,744,861) (554,845) (520,560) (361,249) (337,256) (284,995) (177,671) (143,612) (127,997) (127,695) (117,585) (96,063) (94,605) (78,333) (63,603) (249,897) 2020 (773,152) (507,521) (348,751) (219,965) (98,988) (81,610) (175,188) (144,784) (79,695) (74,477) (136,843) (124,205) (120,385) (27,157) (64,091) (255,721) *Consulting services include audit fees with total amount of GEL57,121 and GEL62,968 for the years ended 31 December 2021 and 2020, respectively.
(5,080,827) (3,232,533) 16.

COMMITMENTS AND CONTINGENCIES LITIGATION In the ordinary course of business, organisations are usually subject to legal actions and complaints.

Legal proceedings against Organisation’s customers unable to repay loans Following the Organisation’s customer’s failure to meet loan repayment obligations the Organisation is involved in legal disputes against such customers.
The highest possible outcome from such legal disputes is the amount of loans receivable from such customers (including accrued interest and other charges).

As it is not certain that all the customers will meet the repayment obligations, the Organisation recognises provision for impairment for such loans, as disclosed in Note 8.
MANAGEMENT REPORT In accordance with the Law on accounting, reporting and auditing (article 7) the Organisation has an obligation to prepare and submit Management Report to the State Regulatory Authority, together with Independent Auditors’ Report no later than 1 October of the year following the reporting period.

The Organisation has prepared Management Report at the date of issue of the financial statements.
Page 23 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 17.
TRANSACTIONS WITH RELATED PARTIES Related parties or transactions with related parties, as defined by IAS 24 “Related party disclosures”, could be one or more of the followings: a) Parties that directly, or indirectly through one or more intermediaries: control, or are controlled by, or are under common control with, the Organisation (this includes parents, subsidiaries and fellow subsidiaries); have an interest in the Organisation that gives then significant influence over the Organisation; and that have joint control over the Organisation; b) Members of key management personnel of the Organisation or its parent; c) Close members of the family of any individuals referred to in (a) or (b); d) Parties that are entities controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (c) or (b); In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form.
Details of transactions between the Organisation and other related parties are disclosed below.
Transactions with related parties as at 31 December 2021 can be presented as follows: Financial Statement caption Borrowings Subordinated borrowings Interest expense Salaries and other employee benefits Other operating expenses Shareholders - Key management - - - - - - - (230,222) - Entity under common control 4,883,259 17,339,867 (2,749,534) - - Transactions with related parties as at 31 December 2020 can be presented as follows: Financial Statement caption Other liabilities Subordinated borrowings Interest expense Salaries and other employee benefits Other operating expenses Financial service Shareholders - Key management - - - - - (370,341) - - (205,553) - - Entity under common control 321,515 19,083,694 (2,688,163) - - - Other - - - - (361,105) Other - - - - (219,965) - Page 24 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 18.
EVENTS AFTER THE REPORTING PERIOD Changes in Georgia legislation On 17 February 2022 the President of the National Bank of Georgia issued Order №14/04 “Approval of the Code of Ethics for the loan recovery by financial organisations”, which defined and framed the behaviour of financial institutions in the process of loan recovery.

Specific obligations and responsibilities were written for financial organisations and a wide list of rights for borrowers.
According to the order, from 1 June 2022, all financial organisations are required to establish and maintain communication with the customer, authorized person, contact person and/or third party related to the customer, except on site visits.

All documentations related to the communication must be documented and kept at least for two months.

On 1 April 2022, the Order №31/04 was issued by the President of the National Bank of Georgia, which was enforced on 25 March 2022.
According to the order the loan service limits/ratios were changed.

Russia – Ukraine war Russian federation launched a full-scale invasion of Ukraine on 24 February 2022, which is ongoing as for the date of the issue of the financial statements.

The Russian Federation’s invasion of Ukraine and the subsequent global response to those military actions may have significant financial effects on many entities.
These include entities with physical operations in Ukraine, Russia and Belarus, as well as indirect interests (e.g.

suppliers and customers, investments and lenders).

Sanctions placed on the Russian government, Russian entities and Russian individuals by many jurisdictions may also affect entities, such as a loss of access to financial resources and trade, as well as the consequential effects of sanctions on worldwide prices (e.g.

oil, natural gas and other petroleum products).


Management is unable to assess the impact (or potential impact) of this war on the Organisation’s operations.

As at 31 December 2021 and the date of these financial statements, the Organisation has no significant operations and balances with the companies/individuals effected by the war.

19.
19.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL INSTRUMENTS INITIAL RECOGNITION OF FINANCIAL INSTRUMENTS Financial assets and financial liabilities are recognised in the Organisation’s financial position when the Organisation becomes a party to the contractual provisions of the instrument.

When financial instruments are recognised initially, they are measured at fair value, adjusted, in the case of instruments not at fair value through profit or loss, for directly attributable fees and costs.
If the transaction price differs from fair value at initial recognition, the Organisation accounts for such difference as follows: • • if the fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a valuation technique that uses only data from observable markets, the Organisation recognises the difference between the fair value at initial recognition and the transaction price as a gain or loss; in all other cases, the initial measurement of the financial instrument is adjusted to defer the difference between the fair value at initial recognition and the transaction price.
After initial recognition, the Organisation recognises that deferred difference as a gain or loss only when the inputs become observable, or when the instrument is derecognised.

Page 25 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 19.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL ASSETS Classification and subsequent measurement On initial recognition, a financial asset is classified into one of the following measurement categories: amortised cost; fair value through other comprehensive income (FVOCI); or fair value through profit or loss (FVTPL).

FINANCIAL ASSETS AT AMORTISED COST Financial asset at amortised cost is the most relevant measurement category to the Organization.
The Organization measures financial assets at amortised cost if both of the following conditions are met: • • The asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment.

Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME A financial asset is measured at fair value through other comprehensive income if it meets both of the following conditions and is not designated as at fair value through profit or loss: • • The asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL.

This includes all derivative financial assets.

The Organisation’s all financial assets are measured at amortised cost, except Derivative financial assets.
BUSINESS MODEL ASSESSMENT There are three business models available under IFRS 9: • Hold to collect: It is intended to hold the asset to maturity to earn interest, collecting repayments of principal and interest form the counterparty.

• Hold to collect and sell: this model is similar to the hold to collect model, except that the entity may elect to sell some or all of the assets before maturity as circumstances change or to hold the assets for liquidity purposes.
• Other: all those models that do not meet the ‘hold to collect’ or ‘hold to collect and sell’ qualifying criteria.

The assessment of business model requires judgment based on facts and circumstances at the date of the assessment.

The business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios per instrument type and is based on observable factors.
The Organisation has considered quantitative factors and qualitative factors such as how the performance of the business model and the financial assets held within that business model are evaluated and reported to the key management personnel; the risks that affect the performance of the business model and, in particular, the way those risks are managed; and how managers of the business are compensated.
Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL, because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.

Page 26 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 19.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SOLELY PAYMENTS OF PRINCIPAL AND INTEREST (SPPI) If a financial asset is held in either to a Hold to Collect or a Hold to Collect and Sell business model, then assessment to determine whether contractual cash flows are solely payments of principal and interest on the principal amount outstanding at initial recognition is required to determine the classification.

The SPPI test is performed on an individual instrument basis.
Contractual cash flows, that represent solely payments of principal and Interest on the principal amount outstanding, are consistent with basic lending arrangement.

Interest is consideration for the time value of money and the credit risk associated with the principal amount outstanding during a particular period of time.

It can also include consideration for other basic lending risks (e.g.

liquidity risk) and costs (e.g.


administrative costs) associated with holding the financial asset for a particular period of time, and a profit margin that is consistent with a basic lending arrangement.
In assessing whether the contractual cash flows are SPPI, the Organisation considers whether the contractual terms of the financial asset contain a term that could change the timing or amount of contractual cash flows arising over the life of the instrument which could affect whether the instrument is considered to meet the SPPI test.

If the SPPI test is failed, such financial assets are measured at FVTPL with interest earned recognised in other interest income.
DERECOGNITION OF FINANCIAL ASSETS A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Organisation’s statement of financial position) when: • • The rights to receive cash flows from the asset have expired, Or The Organisation has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Organisation has transferred substantially all the risks and rewards of the asset, or (b) the Organisation has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
IMPAIRMENT OF FINANCIAL ASSETS Bases for ECL principles In according to IFRS 9 requirements the Organisation records an allowance for expected credit loss (ECL) on all of its debt financial assets at amortised cost or FVOCI.

Equity instruments are not subject to impairment under IFRS 9.
The allowance is based on the ECL associated with the probability of default in the next 12 months unless there has been a significant increase in credit risk since origination, in which case the allowance is based on the ECL over the life of the asset.

If the financial asset meets the definition of purchased or originated credit impaired, the allowance is based on the change in the lifetime ECL.
Under IFRS 9, the Organisation first evaluates individually whether objective evidence of impairment exists for loans that are individually significant.

It then collectively assesses loans that are not individually significant and loans which are significant but for which there is no objective evidence of impairment available under the individual assessment.

Collectively assessesed loans are grouped on the basis of shared credit risk characteristics, collateral type and product type.
Page 27 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 19.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Three stage approach IFRS 9 introduces a three-stage approach to impairment for Financial Instruments that are performing at the date of origination or purchase.

This approach is summarised as follows: Stage 1: The Organisation recognizes a credit loss allowance at an amount equal to 12-month expected credit losses.
This represents the portion of lifetime expected credit losses from default events that are expected within 12 months of the reporting date, assuming that credit risk has not increased significantly after initial recognition.

For those financial assets with a remaining maturity of less than 12 months, a PD is used that corresponds to the remaining maturity.
Stage 2: The Organisation recognizes a credit loss allowance at an amount equal to lifetime expected credit losses for those Financial Instruments which are considered to have experienced a significant increase in credit risk since initial recognition.

This requires the computation of ECL based on lifetime probability of default that represents the probability of default occurring over the remaining lifetime of the Financial Instrument.
Allowance for credit losses are higher in this stage because of an increase in credit risk and the impact of a longer time horizon being considered compared to 12 months in Stage 1.

Financial Instruments in stage 2 are not yet deemed to be credit-impaired.

Stage 3: If the Financial Instrument is credit-impaired, it is then moved to stage 3.
The Organisation recognizes a loss allowance at an amount equal to lifetime expected credit losses, reflecting a Probability of Default (PD) of 100 % for those Financial Instruments that are credit-impaired.

Interest Income Recognition For Financial Instruments in Stage 1 and Stage 2, the Organisation calculates interest income by applying the Effective Interest Rate (EIR) to the gross carrying amount.
Interest income for financial assets in Stage 3 is calculated by applying the EIR to the amortised cost (i.e.

the gross carrying amount less credit loss allowance).

For Financial Instruments classified as purchased or originated credit-impaired only, interest income is calculated by applying a credit adjusted EIR to the amortised cost of these purchased or originated credit-impaired assets.
Definition of default The Organisation recognizes default in the following cases: • • • Arrears including restructured loans >90 days Decease of a client Force majeure, when a client becomes insolvent due to external factors beyond the control The definition of default is in line with relevant regulations taking into account the 90 days past due cap presumption IFRS 9.

The loans for which the Organisation recognizes default are credit-impaired loans.
Significant increase in credit risk When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Organisation considers reasonable and supportable information that is relevant and available without undue cost or effort.

This includes both quantitative and qualitative information and analysis, based on the Organisation's historical experience and expert credit assessment and including forward-looking information.
The quantitative information is a primary indicator of significant increase in credit risk and is based on the change in lifetime PD by comparing: • • the remaining lifetime PD at the reporting date; with the remaining lifetime PD for this point in time that was estimated based on facts and circumstances at the time of initial recognition of the exposure.

As a backstop, the Organisation considers that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due.
Page 28 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 19.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Organisation monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews to confirm that: • • • The criteria are capable of identifying significant increases in credit risk before an exposure is in default; The criteria do not align with the point in time when an asset becomes 30 days past due; and There is no unwarranted volatility in loss allowance from transfers between 12-months PD (probability of default) and lifetime PD.
Forward-looking information Under IFRS 9, the allowance for credit losses is based on reasonable and supportable forward-looking information obtainable without undue cost or effort, which takes into consideration past events, current conditions and forecasts of future economic conditions.

The Organisation incorporates forward-looking information into both its assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and its measurement of ECL.
The Organisation has identified and documented the key drivers of credit risk and credit losses for the portfolio using an analysis of historical data, has assessed impact of macro-economic variables on probability of default and recovery rate.
The following macro-economic variables were analysed: • Real growth rate of GDP of Georgia; • Unemployment rate; Measurement of ECL The key inputs into the measurement of ECL are the term structure of the following variables: • • • Probability of default (PD); Loss given default (LGD); Exposure at default (EAD).

These parameters are generally derived from internally developed statistical models and other historical data.

They are adjusted to reflect forward-looking information as described above.
Probability of default (PD) PD estimates are estimates at a certain date, which are calculated based on statistical rating models.

If a counterparty or exposure migrates between ratings classes, then this will lead to a change in the estimate of the associated PD.

PDs are estimated considering the contractual maturities of exposures and estimated prepayment rates.

PDs are calculated based on three-year average and then 1-year and lifetime PDs are derived by extrapolating using migration matrices.
Exposure at default (EAD) Exposure of default (EAD) represents an estimate of the exposure to credit risk at the time of a potential default occurring during the life of a financial asset.

It represents the cash flows outstanding at the time of default, considering expected repayments, interest payments and accruals discounted at the EIR.

Loss given default (LGD) LGD is defined as the likely loss in case of a counterparty default.
The Organisation estimates LGD parameters based on the history of recovery rates of claims against defaulted counterparties.

The LGD model considers cash recoveries only.

LGD is calculated on a discounted cash flow basis using the effective interest rate as the discounting factor.

Page 29 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 19.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL LIABILITIES The Organisation classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired.

On 1 January 2018 (the date of initial application of IFRS 9), the Organisation has classified all financial as liabilities within “Other financial liabilities” category.

Other financial liabilities include the following items: borrowings and other short-term monetary liabilities.
Other financial liabilities are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument.

Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the statement of financial position.
For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

DERECOGNITION OF FINANCIAL LIABILITIES The Organisation derecognises financial liabilities when, and only when, the Organisation’s obligations are discharged, cancelled or they expire.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability.

The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit and loss.
OFFSETTING Financial assets and liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously.
FOREIGN CURRENCY TRANSLATION Items included in the financial statements are measured using the currency of the primary economic environment in which The Organisation operates (‘the functional currency’).

Financial statements are presented in thousands of Georgian Lari (GEL), which is the Organisation’s functional and presentation currency.

Monetary assets and liabilities are translated into the Organisation’s functional currency at the official exchange rate of the National Bank of Georgia.
Foreign exchange gains and losses resulting from the settlement of transactions and from the translation of monetary assets and liabilities into Organisation’s functional currency at year-end official exchange rates are recognised in the statement of comprehensive income.

Translation at year-end rates does not apply to non-monetary items, including equity investments.

Effects of exchange rate changes on the fair value of equity securities are recorded as part of the fair value gain or loss.
Table below presents the closing exchange rates by the National Bank of Georgia as at 31 December 2021 and 2020: Exchange rate as at 31 December 2021 Exchange rate as at 31 December 2020 USD / GEL 3.0976 3.2766 Page 30 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 19.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS Cash and cash equivalents are items which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Cash and cash equivalents include cash on hand, and all bank placements or receivables with original maturities of less than three months.

Funds restricted for a period of more than three months on origination are excluded from cash and cash equivalents.
LOANS TO CUSTOMERS AND OTHER RECEIVABLES Loans to customers and other receivables included in other assets in the statement of financial position are non- derivative financial assets measured at amortised cost.

Loans to customers and other receivables are initially measured at fair value and subsequently at their amortised cost using the effective interest method.
PROPERTY AND EQUIPMENT Property and equipment are carried at historical cost less accumulated depreciation and recognized impairment loss, if any.

Depreciation is charged on the carrying value of property and equipment and is designed to write off assets over their useful economic lives.
Depreciation is calculated on a straight-line basis at the following useful lives: Historical cost Leasehold improvements Office equipment Other Useful life (years) 10 5 5 The carrying amounts of property and equipment are reviewed at each reporting date to assess whether they are recorded in excess of their recoverable amounts.

The recoverable amount is the higher of fair value less costs to sell and value in use.

BORROWINGS AND SUBORDINATED BORROWINGS Borrowings are initially recognised at fair value.
Subsequently they are stated at amortised cost and any difference between net proceeds and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings, using the effective interest method.

The subordinated borrowings represent the obligations that rank lower than all other loans and securities with respect to the claim on a firm’s assets.
Therefore, if the borrower defaults, the creditors of subordinated debt will be compensated after all other debt holders are paid in full.

SHARE CAPITAL Ordinary shares with discretionary dividends are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Any excess of the fair value of consideration received over the par value of shares issued is recorded as share premium in equity.
DIVIDENDS Dividends are recorded in equity in the period in which they are declared.

Any dividends declared after the end of the reporting period and before the financial statements are authorised for issue, are disclosed in the subsequent events note.

Page 31 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 19.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LEASES The Organisation as lessee Identifying the lease A contract is, or contains, a lease when it conveys the right to use an underlying asset for a period of time, in exchange for consideration.
At inception of a contract, the Organisation assesses whether it meets the two following cumulative conditions to be qualified as a lease: - - its execution involves the use of an identified asset, and it conveys the right to direct the use of that identified asset.

Initial recognition All leases are accounted for by recognising a right-of-use asset and a lease liability except for: - - Leases of low value assets; and Leases with a duration of 12 months or less.
Leases are recognised on the Organisation’s balance sheet as follows: - - An asset representing the right to use the underlying asset over the lease term; A liability for the obligation to pay the lease payments.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless this is not readily determinable, in which case the Organisation’s incremental borrowing rate on commencement of the lease is used.

Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate.
In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term.

Other variable lease payments are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also includes: - - - amounts expected to be payable under any residual value guarantee; the exercise price of any purchase option granted in favour of the Organisation if it is reasonably certain to assess that option; any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.
At the commencement date, the Organisation measures the right-of-use asset at cost.

The cost of the right-of-use asset is comprised: - - - - The amount of the initial measurement of the lease liability; lease payments made at or before commencement of the lease; initial direct costs incurred; and the amount of any provision recognised where the Organisation is contractually required to dismantle, remove or restore the leased asset (typically leasehold dilapidations).
Subsequent measurement Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made.

Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.
Page 32 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 19.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) When the Organisation revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the revised discount rate.
The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged.

In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.

If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.
When the Organisation renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification: - - - if the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease in accordance with the above policy; in all other cases where the renegotiated increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount; if the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial of full termination of the lease with any difference recognised in profit or loss.
The lease liability is then further adjusted to ensure its carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date.

The right-of- use asset is adjusted by the same amount.
The Organisation elects, by class of underlying asset, not to separate non-lease components from lease components, and instead accounts for each lease component and any associated non-lease components as a single lease component.
Determination of lease term The lease term is defined as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease (including the renewal option implied through customary business practices) if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease if it is reasonably certain not to be exercised.
Management applies judgement to determine the lease term when contracts include renewal options that are exercisable only by the Organisation.

It considers all relevant factors that create an economic incentive to exercise the renewal option.

After the commencement date, the Organisation reassesses the lease term if there is a significant event or a change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew, or to terminate the lease.
Determination of incremental borrowing rate (IBR) IBR is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment.

The management applies judgement to estimate the IBR.
The management uses an observable information to determine the base rate and adjustments for the lessee specific factors and the asset factors (the adjustment for security).

Determination of lease payments In Georgia it is customary that lease renewal option is implied through customary business practices and not all renewal options are documented within the lease agreements.
In such cases, the initial measurement of the lease liability assumes the payment for renewal period will remain unchanged throughout the lease term.

Short-term leases and leases of low-value assets The Organisation applies the recognition exemption for short-term leases (i.e.

lease with a lease term of 12 months or less from the commencement date) and leases of low-value assets.

Associated lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
Page 33 of 34 JSC MFO EURO CREDIT NOTES TO THE FINANCIAL STATEMENTS For the years ended 31 December 2021 (In Georgian Lari) 19.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) TAXATION The tax expense for the year comprises current and deferred tax.

Tax is recognized in the statement of comprehensive income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity.
In this case the tax is also recognized in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in Georgia and generates taxable income.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation.
It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit and loss.
Deferred income tax is determined using tax rate (and laws) that has been enacted or substantially enacted by the balance sheet date and is expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity where there is an intention to settle the balances on a net basis.
SALARIES AND OTHER EMPLOYEE BENEFITS Wages, salaries, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by the employees of the Organisation.

PROVISIONS Provisions are recognized when the Organisation has a present obligation (legal or constructive) as a result of a past event, it is probable that the Organisation will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).
EVENTS AFTER THE REPORTING PERIOD Events after the reporting period and events before the date of financial statements authorization for issue that provide additional information about The Organisation’s financial statements are reported in the financial statements.

Post-balance sheet events that do not affect the financial position of The Organisation at the balance sheet date are disclosed in the notes to the financial statements when material.

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