Audited Financial Statements as of 31st March 2025

ME1tCAN'1'1LE M VES'I'MFN'I'S AND FMANCE ALC FINANCIAL STATEMENTS

31 MARCH 2025

Shape the future with confidence

GSM/RMD/DW

Ernst 8 Younq Tel: +94 11 246 3500

Chartered Accountants Fax: +94 11 768 7869 Rotunda Towers Email: eysl@lk.ey.com No. 109, Galle Road ey.com

P.O. Box 101

Colombo 03, Sri Lanka

INDEPENDENT AUDITOR'S REPORT

TO THE SHAREHOLDERS OF MERCANTILE INVESTMENTS AND FINANCE PLC

Report on the Audit of Financial Statements

Opinion

We have audited the financial statements of Mercantile Investments and Finance PLC (the Company), which comprise the statement of financial position as at 31 March 2025, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including material accounting policy information.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as at 31 March 2025 and of its financial performance and its cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Basis for opinion

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). 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 Company in accordance with the Code of Ethics for Professional Accountants issued by CA Sri Lanka (Code of Ethics) and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming the auditor's opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures. including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

(Contd...2/)

Partners: D K Hulangamuwa FCA FCMA LLB (London), A P A Gunasekera FCA FCMA, Ms. Y A De Silva FCA, Ms. G G S Manatunga FCA, W K B S P Fernando FCA FCMA FCCA, B E Wijesuriya FCA FCMA,

R N de Saram ACA FCMA, Ms. N A De Silva FCA, N M Sulaiman FCA FCMA. Ms. L K H L Fonseka FCA, Ms. P V K N Sajeewani FCA. A A U R Perera FCA ACMA, N Y R L Fernando ACA, D N Gamape ACA ACMA, C A Yalagala ACA ACMA, Ms. P S Paranavitane ACA ACMA LLB tColombo), B Vasanthan ACA ACMA, W D P L Perera ACA

Principals: T P M Ruberu FCMA FCCA MBA tUSJ-SL), G B Goudian ACMA, D L B Karunathilaka ACMA, N S J De Silva Bsc {HonsJ - MIS Msc - IT, V Shakthivel B.Com jsp)

A member firm of Ernst & Young Global Limited

(Contd...3/)

('CU/11a'...4/'J

Other Information included in the Company's 2025 Annual Report

Other information consists of the information included in the Company's 2025 Annual Report, other than the financial statements and our auditor's report thereon. Management is responsible for the other information. The Company's 2025 Annual Report is expected to be made available to us after the date of this auditor's report.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements, or our knowledge obtained in the audit or otherwise appears to be materially misstated..

Responsibilities of manaqement and those charged with governance for the financial statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, 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, manaqement is responsible for assessinq the Company's ability to continue as a qoing concern, disclosinq, as applicable, matters related to qoinq concern and usinq the qoinq concern basis of accountinq unless manaqement either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeinq the Company'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 SLAuSs 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.

As part of an audit in accordance with SLAuSs, 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.

  e 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 Company'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 mdy Cast significant doubt on the Company'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 basea on the audit evidence obtained up to the date of our auditor's report. However, future evenfs or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether 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 contro! that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate w‹t'n them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these ma fters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

As required by section 163 (2) of the Companies Act No. 07 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor's report is 2471.

11 June 2025 Colombo

Changes in fair value of Financial assets measured at Fair Value Through Other Comprehensive Income 46.1

(FvoCI)

Other comprehensive expenses to be reclassified to profit or loss in subsequent periods

Other comprehensive income/(expenses) not to be reclassified to profit or loss in subsequent periods

Changes in fair value of Financial assets measured at Fair Value Through Other Comprehensive IflGomfl

630,994 488,545

F' ets.' di deductions.

be ' policies and the notes from pages 10 to 100 form an integral part of these financial statements.

STATEMENT OF FINANCIAL POSITION

As at 31 March 2025

2025 2024

Note RS.'000 Rs.'000

Fair Value through OCI reserve

46 608,402 80,812

13,836,531 12,165,068

70,933,978 53,230,713

Net assets per share (Rs.)

Capital commitments and contingencies

47 & 48

4,603

4,047

I certify that th torrents have been prepared in ompliancc with the requirements of the Companies Act No. 07 of 2007.

Deva Anthony

Chief Financial Officer / -Board)

The Board of Dfieto rusponsibte for Financial Statements.

The Financial 6nis were authorized r issue by the Directors on 11 June 2025. The Directors have the power to amend and reissue the Financial Statements. " for of behalf of the Board by;

. . . ........-. . .....-... ............... .... ...• ...• ......

Gerard G. Ondaatjie Sb l 8yasunya

Managing Director I' ee Director

The si ' cant accounting policies and the notes from pages 10 to 100 form an integral part of these financial statute.

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Mercantile Investments and Finance PLC STATEMENT OF CHANGES IN EQUITY

Year ended 31 March 2025

Figures in brackets indicate deductions.

The significant accounting policies and the notes from pages 10 to 100 form an integral part of these financial statements.

-8-

Mercantile Investments and Finance PLC STATEMENT OF CASH FLOW

Year ended 31 March 2025

Cash in hand Balances with bank

Money market balances Bank Overdrafts

flow from Interest

*1

Its 'u

$ ting policies and the notes from pages 10 to 100 form an integral part of these financial statements.

-9-

The financial statements of Mercantile Investments and Finance PLC for the year ended 31 March 2025 (including comparatives) were approved and authorized for issue by the Board of Directors on 11° June 2025.

1. BASIS OF PREPARATION

   This section provides a summary of material accounting policies, judgements, estimates and assumptions used and other general accounting policies.

   All specific accounting policies and accounting estimates in relation to the reported values have been presented in the respective notes in the financial statements.

   These financial statements have been prepared under the historic cost basis, except for certain financial assets and liabilities, which are measured at fair value.

   1. Statement of compliance

      The financial statements of the company have been prepared and presented in accordance with Sri Lanka Accounting Standards comprising Sri Lanka Financial Reporting Standards ('SLFRS') and Sri Lanka Accounting Standards ('LKAS') (hereafter "SLFRS"), as issued by the Institute of Chartered Accountants of Sri Lanka, relevant interpretations of the Standing Interpretations Committee ('SIC') and International Financial Reporting Interpretations Committee ('IFRIC') and in compliance with the requirements of the Companies Act No. 07 of 2007 and Finance Business Act No. 42 of 201 l and amendments thereto, providing appropriate disclosure as required by Listing Rules of the Colombo Stock Exchange. These Sri Lanka Accounting Standards are available at https://www.slaasc.com.

      The formats used in the preparation of the financial statements and the disclosures made therein also comply with the specified format prescribed by the Central Bank of Sri Lanka for the preparation, presentation and publication of annual audited financial statements of licensed finance companies.

   2. Responsibility for financial statements

      The Board of Directors is responsible for these financial statements of the company as per the provision of the Companies Act No. 07 of 2007 and the Sri Lanka Accounting Standards.

      The Board of Directors acknowledges their responsibility for the financial statements in the statement of financial position.

      These financial statements include the following components:

      • Statement of comprehensive income providing the information on the financial performance of the company for the year under review (refer to page 6).

      • Statement of financial position providing the information on the financial position of the company as at year-end (refer to page 7).

      • A statement of changes in equity depicting all changes in shareholders' equity during the year under review (refer to page 8).

      • Statement of cash flow providing the information on the users on the ability of the company to generate cash and cash equivalents and the needs for the utilization of those cash flows (refer to page 9)

        
        
        

      • Notes to the financial statements that comprise of accounting policies used and other explanatory information (refer to pages 10 to 101).

   3. Basis of measurement

      The financial statements have been prepared on a historical cost basis, except for the following material items in the statement of financial position. Where appropriate, the specific policies are explained in the succeeding notes.

      Items	Basis of measurement	Note No.
      Financial investments at FVPL	Measured at Fair value	22
      Financial investments at FVOCI	Measured at Fair value	22
      Land and buildings	Measured at cost at the time of acquisition and subsequently at revalued amounts which are their fair values at the date of revaluation	31
      Defined benefit obligations	Measured at the present value of the defined benefit obligation.	38
      Lease liability	Measured at amortised cost using effective interest rate method	39

   4. Functional currency and presentation currency

      Items included in the financial statements are measured using the currency of the primary economic environment in which the company operates ('the functional currency'), which is the Sri Lankan Rupee .

      These financial statements are presented in Sri Lankan Rupees, which is the company's functional and presentation currency except when otherwise indicated.

   5. Presentation of financial statements

      The assets and liabilities of the company presented in its statement of financial position are grouped by nature and listed in an order that reflects their relative liquidity and maturity pattern. No adjustments have been made for inflationary factors affecting the financial statements. An analysis on recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in the Note 55 to the financial statements.

   6. Materiality and aggregation

      Each material class of similar items is presented separately in the financial statements. Items of dissimilar nature or function are presented separately unless they are immaterial as permitted by Sri Lanka Accounting Standards LKAS 1 "Presentation of Financial Statements".

      Notes to the financial statements are presented in a systematic manner, which ensures the understandability and compatibility of the financial statements of the Company. The understandability of the financial statements is not compromised by obscuring material information or by aggregating material items that have different natures or functions.

   7. Rounding
      
      
      

      The amounts in the financial statements have been rounded off to the nearest Rupees thousands, except where otherwise indicated as permitted by the Sri Lanka Accounting Standards LKAS 1 "Presentation of Financial Statements".

      NOTES TO THE FINANCIAL STATEMENTS

      Year ended 31 March 2025

   8. Offsetting

      Financial assets and financial 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 recognized amount and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. Income and expenses are not offset in the statement of comprehensive income, unless required or permitted by an accounting standards or interpretation, and as specifically disclosed in the accounting policies of the company.

      
      
      
   9. Comparative information

      Comparative information, including quantitative, narrative and descriptive information is disclosed in respect of the previous period in the financial statements in order to enhance the understanding of the current period's financial statements and to enhance the inter period comparability. The presentation and classification of the financial statements of the previous year are amended, where relevant, for better presentation and to be comparable with those of the current year.

   10. Going concern basis of accounting

       When preparing the financial statements, the management shall assess the company's ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the company's ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.

   11. Use of judgements and estimates
       
       
       

       The preparation of the company's financial statements in conformity with Sri Lanka Accounting Standards (SLFRS and LKAS) requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods and thus the actual results may differ from these estimates.

       The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will by definition, seldom equal the related actual results. Estimates and underlying assumptions are reviewed on an ongoing basis, Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period and any future periods.

       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 addressed below;

       1. Fair value of financial instruments
          
          
          

          When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not possible, a degree of judgement is required in establishing fair values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

          NOTES TO THE FINANCIAL STATEMENTS

          Year ended 31 March 2025

          The Company measures fair value using the fair value hierarchy that reflects the significance of input used in making measurements. The valuation of financial instruments is described in more detail in the Note 19 to the financial statements.

       2. Financial assets and liabilities classification

          The accounting policies of the company provide scope for assets and liabilities to be classified at inception into different accounting categories under certain circumstances. The classification of financial instrument is given in the Note 18 to the financial statements.

       3. Impairment losses on loans and advances

          The measurement of impairment losses under Sri Lanka Accounting Standard - SLFRS 9 across all categories of financial assets requires judgements, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining impairment losses and the assessment of a significant increase in credit risk.

          The company reviews its individually significant loans and advances at each reporting date to assess whether an impairment loss should be recorded in the statement of comprehensive income. In particular, management's judgement is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and hence, actual results may differ, resulting in future changes to the provisions made.

          Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to Expected Credit Loss.

          J

          A collective assessment of impairment takes into account data from the Loans and advance portfolio (such as credit quality, levels of arrears, credit utilization, advances to collateral ratios etc.), and concentrations of risk and economic data (including levels of unemployment, Inflation, GDP Growth Rate, country risk and the performance of different individual groups).

          The impairment loss on loans and receivables is disclosed in more detail in Notes 10, 23, 24 and 25 to the financial statements.

       4. Impairment of other financial assets

          The Company reviews its debt securities classified as amortised cost, at each reporting date to assess wheaer they are impaired. Objective evidence that a debt security held at amortised cost is impaired includes among other things significant financial difficulty of the issuer, a breach of contract such as a default or delinquency in interest or principal payments etc.

          Management judgement has been involved in determining whether there is a significant increase in the credit risk of these instruments or these instruments are impaired as at the reporting date.

          Equity instruments classified as FVOCI are not subject to an impairment assessment.

          
          
          
       5. Impairment of non-financial assets

          Impairment exists when the carrying value of an asset or cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions, conducted at arm's length observable market prices less incremental costs for disposing of the asset. The value-in-use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the company is not yet committed to or significant future investments that will enhance the asset discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

       6. Taxation

          The Company is subject to income tax and judgement is required to determine the total provision for current, deferred and other taxes due to the uncertainties that exist with respect to the interpretation of the applicable tax laws, at the time of preparation of these Financial Statements. The details of the deferred tax computation are given in Note 37 to the Financial Statements.

       7. Estimation of income taxes in relation to uncertain tax position

          Judgement is involved in determining the Company's provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for tax matters based on estimates of whether additional taxes will be due. If the outcome of these taxes results in a difference in the amounts initially recognized, such differences will impact the income tax and/ or deferred income tax provisions in the period in which such determination is made.

          
          
          
       8. Recognition of deferred tax assets

          Deferred tax assets are recognized for unused tax losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax plarining strategies.

       9. Defined benefit obligations

          The cost of defined benefit plans is determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates etc. Due to the complexity of the valuation, the underlying assumptions and long-term nature, a defined benefit obligation is sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. Refer Note 38 for the assumptions used to determine defined benefit obligations. Sensitivity analysis to key assumptions is disclosed in Note 38.4

       10. Estimation of carrying value and useful lives of Property, Plant and Equipment and Intangible Assets
           
           
           

           The company reviews the residual values, useful lives and method of depreciation of Property, Plant and Equipment at each reporting date. Judgement of the management is exercised in the estimation of these values, rates, methods and hence, they are subject to uncertainty.

           NOTES TO THE FINANCIAL STATEMENTS

           Year ended 31 March 2025

           The Company reviews annually the estimated useful lives of PPE and intangible assets based on factors such as business plansand strategies, expected levels of usage. Future results of operations could be materially affected by changes in these estimates brought by changes in the factors mentioned. A reduction in the estimated useful lives of PPE and intangible assets would increase the recorded depreciation and amortization charge and decrease the carrying value.

       11. Revaluation of property, Plant and Equipment
           
           
           

           The company measures land and buildings at revalued amounts. The company engaged an independent professional valuer to assess fair values of significant components of land and buildings as at 31" March 2025. The key assumptions used to determine the fair value of the land and buildings are provided in the Note 3 l to the financial statements.

           The Company measures lands and buildings at revalued amounts with changes in fair value being recognized in Equity through Other Comprehensive Income (OCI). Valuations are performed to ensure that the fair value of a revalued asset does not differ materially from it carrying amount. The Company engages independent professional valuer to assess fair value of land and buildings in terms of Sri Lanka Accounting Standard on "Fair Value Measurement" (SLFRS13). Based on the valuation techniques and inputs used, lands and building were classified at level 3 in the fair value hierarchy

           The valuation techniques, significant unobservable inputs, key assumptions used to determine the fair value of the land building, and sensitivity analysis are provided in Note 31.

       12. Provisions for liabilities, commitments and contingencies

           The company receives legal claims in the normal course of business. Management has made judgements as to the likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the amount of possible outflow of economic benefits. Timing and cost ultimately depend on the due

           ) processes in respective legal jurisdictions.

           Determination of the treatment of contingent liabilities in the financial statement is based on the management's view of the expected outcome of the applicable contingency. The Company consults with legal counsel on matters related to litigation and other experts both within and outside the Company with respect to matters in the ordinary course of business.

       13. SLFRS 16 - Leases
           
           
           

           The Company uses its judgment to determine whether an operating lease contract qualifies for recognition of right- of- use assets. It also uses judgement in the determination of the discount rate in the calculation of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease. As the Company cannot readily determine the interest rate implicit in the lease, it uses its incremental borrowing rate to measure the lease liability. The incremental borrowing rate is the rate of interest that the Company would have to pay, to borrow an amount similar to the value of the lease asset, over a similar term and with a similar security in similar economic environment. Further, the Company applies judgement in evaluating whether it is reasonably certain to renew or terminate the lease at the end of the lease term. That is, it considers all relevant factors that create an economic benefit for it to exercise, either the renewal or the termination option.

           NOTES TO THE FINANCIAL STATEMENTS

           Year ended 31 March 2025

       14. Impact of climate risk

           The Company and its customers are exposed to the physical risks from climate change and the risks of transitioning to a net-zero economy. These risks may involve refinancing and liquidity risks for certain customers in high-risk sectors where financial institutions may seek to reduce their exposures in the future. However, the nature and location of the Company's counterparties and the underlying collateral limit the impact of this exposure. Climate-related matters may impact the following items and balances.

           
           
           

           Expected credit losses (ECL): Customers and portfolios with exposure to climate risk may have a resultant deterioration in creditworthiness and a consequential impact on ECL. Overall, the Company is of the view that the counterparties who have exposures to climate risk are not expected to be materially impacted by physical or transition risk associated with climate change. For example, the majority of the counterparties are not employed, or do not operate in high-risk sectors, nor are they located in high-risk geographical areas. As a result, it was assessed that the magnitude of any impact of climate risk would not be material in the current reporting period.

           Fair value measurement: The Company has assumed that any climate change variables incorporated in fair value measurement are those that market participants would consider when pricing the asset or liability, in line with SLFRS 13 Fair Value Measurement. Consequently, the Company concluded that climate risk has been adequately reflected within the fair value of its assets and liabilities. Where prices are observable, it is assumed that the fair value akeady incorporates market's participants' view of climate risk variables.

2. MATERIAL ACCOUNTING POLICIES -RECOGNITION OF ASSETS AND LIABILITIES Material accounting policies

   The principal accounting policies adopted in the preparation of these financial statements are set out below.The accounting policies set out below have been applied consistently to all periods presented in the financial statements, unless otherwise indicated.

   
   
   

   The Company has not early adopted any other standard, interpretation or amendment that has been issued but not effective as given in Note 5b).

   1. Financial instruments - Initial recognition, classification and subsequent measurement
      1. Date of recognition

         All financial assets and liabilities except "regular way trades" are initially recognized on the trade date, i.e., the date that the company becomes a party to the contractual provisions of the instrument. "Regular way trades", means purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace. Those trades are initially recognized on the settlement date.

      2. Initial measurement of financial instruments

         The classification of financial instruments at initial recognition depends on their purpose and characteristics and the management's intention in acquiring them. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss as per the Sri Lanka Accounting Standard - SLFRS 9 on "Financial Instrument'.

         
         
         

         Transaction costs in relation to financial assets and financial liabilities at fair value through profit and loss are dealt with through the statement of comprehensive income.

         NOTES TO THE FINANCIAL STATEMENTS

         Year ended 31 March 2025

         1. Day 1' Profit or Loss

            When the transaction price differs from the fair value of other observable current market transactions in the same instruments or based on a valuation technique that shows variables include only data from observable markets, the company immediately recognizes the difference between the transaction price and fair value (a 'Day1 profit or loss) in 'interest income and personnel expenses". In cases where fair value is determined using data, that is not observable, or when the instrument is recognized, the 'Day 1 loss' arising in the case of loans granted to employees at concessionary rates under uniformly applicable schemes is deferred and amortized using "Effective Interest Rates" (EIR) over the remaining service period of the employees or tenure of the loan, whichever is shorter.

            
            
            
   2. Financial Instruments

1. Classification of Financial Instruments

   The Company classifies its financial assets into the following measurement categories:

   • Measured at fair value (either through Other Comprehensive Income, or through Profit or Loss); and

   • Measured at amortized cost.

     The classification depends on the Company's business model for managing financial assets and the contractual terms of the financial assets' cash flows.

     The Company classifies its financial liabilities at amortized cost unless it has designated liabilities at fair value through profit or loss or is required to measure liabilities at fair value through profit or loss such as derivative liabilities.

2. Financial Assets measured at amortized cost

   Cash and Cash equivalent, Placements, Loans and Receivables from Customers and Other Financial Assets are

   ) measured at amortized cost where they have:

   « Contractual terms that give rise to cash flows on specified dates, that represent solely payments of principal and interest (SPPI) on the principal amount outstanding; and

   • Are held within a business model whose objective is achieved by holding to collect contractual cash flows.

     These instruments are initially recognized at fair value plus directly attributable transaction costs and subsequently measured at amortized cost. The measurement of credit impairment is based on the three-stage Expected Credit Loss model described below in Note (V) Impairment of Financial Assets.

     1. Business model assessment

        The Company determines its business model at the level that best reflects how it manages groups of financial assets to achieve its business objective

        The Company's business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios and is based on observable 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 entity's key management personnel

          
          
          

        • The risks that affect the performance of the business model(and the financial assets held within that business model) and, in particular, the way those risks are managed

          NOTES TO THE FINANCIAL STATEMENTS

          Year ended 31 March 2025

        • How managers of the business are compensated (for example, whether the compensation is based on the fair values of the assets managed or on the contractual cash flows collected)

          The expected frequency, value and timing of sales are also important aspects of the Company's assessment.

          The business model assessment is based on reasonably expected scenarios without taking "worst case" or "stress case" scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Company's original expectations, the Company does not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

          
          
          

     2. The SPPI test

     As a second step of its classification process, the Company assesses the contractual terms of financial instrument to identify whether they meet the SPPI test.

     'Principal' for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the premium/discount).

     The most significant elements of interest within a lending arrangement are typically the consideration for the time value of money and credit risk. To make the SPPI assessment, the Company applies judgement and considers relevant factors such as the currency in which the financial asset is denominated, and the period for which the interest rate is set.

     In contrast, contractual terms that introduce a more than the minimal exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement, do not give rise to contractual cash flows that are solely payments of principal and interest on the amount outstanding. In such cases, the financial asset is required to be measured at FVPL.

     
     
     

3. Financial assets measured at fair value through Other Comprehensive Income Equity instruments

Investment in equity instruments that are neither Trading Financial Assets recognized through Profit or Loss, nor contingent consideration recognized by the Company in a business combination to which SLFRS 3 'Business Combination' applies, are measured at fair value through Other Comprehensive Income, where an irrevocable election has been made by management. For portfolios where management does not consider an irrevocable election of adopting fair value through Other Comprehensive Income, by default such investments shall be measured at fair value through Profit and Loss. Amounts presented in oaer Comprehensive Income are not subsequently transferred to Profit or Loss. Dividends on such investments are recognized in Profit or Loss.

Debt Instruments

Investments in debts instruments including Government securities are measured at fair value through Other Comprehensive Income.

Amounts presented in Other Comprehensive Income are not subsequently transferred to Profit or Loss. Interest on such investments is recognized in Profit or Loss.