20 Financial instruments (continued) An analysis of the exchange rate sensitivity by foreign currency is as follows: AUD strengthened AUD weakened Change Effect on profit before tax Effect on equity Change Effect on profit before tax Effect on equity 30-Jun-22 US$ net financial assets/liabilities 10% (840,503) 840,503 10% 1,027,282 (1,027,282) EUR net financial assets/liabilities 10% 203,843 (203,843) 10% (249,141) 249,141 CAD net financial assets/liabilities 10% 329,197 (329,197) 10% (402,352) 402,352 Cash on hand at bank (307,463) 307,463 375,789 (375,789) AUD strengthened AUD weakened Change Effect on profit before tax Effect on equity Change Effect on profit before tax Effect on equity 30-Jun-21 US$ net financial assets/liabilities 10% (2,256) 2,256 10% 2,257 (2,257) EUR net financial assets/liabilities 10% (891,129) 891,129 10% 1,089,157 (1,089,157) CAD net financial assets/liabilities 10% 29,521 (29,521) 10% (36,081) 36,081 Cash on hand at bank (863,864) 863,864 1,055,333 (1,055,333) Interest rate risk The Consolidated Entity’s exposure to the risk of changes in market interest rates relates primarily to the Consolidated Entity’s cash and cash equivalents with a floating interest rate. Short term deposits are made for varying periods depending on the immediate cash requirements of the Consolidated Entity and earn interest at the respective short term deposit rates. Taking into account the current cash balance and prevailing interest rates, a +/- 1.0%movement from the year-end Australian interest rates will not have a material impact on the profit or loss and cash balances of the Consolidated Entity. Credit risk The Consolidated Entity has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Consolidated Entity based on recent sales experience, historical collection rates and forward-looking information that is available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. The Consolidated Entity trades only with recognised, creditworthy third parties. Receivable balances are monitored on an ongoing basis with the results being that the Consolidated Entity’s exposure to bad debts is not significant. Credit risk arises from the financial assets of the Consolidated Entity, which comprise cash and cash equivalents and trade and other receivables. The Consolidated Entity’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. No collateral is held as security. Exposure at balance date is the carrying value as disclosed in each applicable note. Liquidity risk Vigilant liquidity risk management requires the Consolidated Entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Consolidated Entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. 43 Melbana Energy Limited Annual Report 2022
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