INDUSTRIAL HOLDING BULGARIA PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 31 MARCH 2013

#### 2.2 Summary of significant accounting policies (continued)

########## d) Financial instruments – initial recognition and subsequent measurement

########## Financial assets (continued)

########## Derecognition (continued)

Where the Company has transferred its rights to receive cash flows from an asset or has intervened in the transfer agreement and neither transferred nor retained substantially all the risks and rewards of the asset, but has retained control over it, it continues to recognize the transferred financial asset to the extent of its continuing involvement in it. In this case, the Company recognizes the related obligation. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that may have to be reimbursed by the Company.

########## Impairment of financial assets

At each reporting date, the Company assesses whether there is objective evidence that a financial asset or group of financial assets may be impaired. Financial asset or group of financial assets is deemed to be impaired when there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (an "event of loss") and that the loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably measured. Evidence of impairment may include indications that the debtors or groups of debtors experiencing serious financial difficulties or are in default or delinquency in the payment of interest or principal, or likely to declare insolvency / over-indebtedness or take financial reorganization and where observable data indicate measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that are related to defaults by borrowers.

######### Financial assets carried at amortised cost

For financial assets measured at amortized cost, the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists individually assessed financial asset, whether it is significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets are assessed for impairment collective basis. Assets that are individually assessed for impairment and for which an impairment loss has been and continues to be recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future expected losses on loans that have not yet been incurred). Present value of estimated future cash flows discounted at the original effective interest rate of financial assets. If a loan has a variable interest rate, the discount rate for evaluation of the impairment loss is the current effective interest rate.

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