KUB Malaysia Berhad Annual Report 2021

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) 3.15 Financial instruments (cont’d) Financial assets (cont’d) Classification of financial assets (cont’d) (i) Amortised cost and effective interest method (cont’d) Interest income is recognised using the effective interest method for debt instruments measured at amortised cost and at FVTOCI. For financial assets other than purchased or originated credit‑impaired financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit‑impaired. For financial assets that have subsequently become credit‑impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset. If, in subsequent reporting periods, the credit risk on the credit‑impaired financial instrument improves so that the financial asset is no longer credit‑impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset. (ii) Financial assets designated as at FVTOCI The Group may make an irrevocable election (on an instrument‑by‑instrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognised by an acquirer in a business combination. A financial asset is held for trading if: • it has been acquired principally for the purpose of selling it in the near term; or • it is part of a portfolio of identified financial instruments that the Group manages together and has evidence of a recent actual pattern of short‑term profit‑taking; or • it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument). Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investments revaluation reserve. The cumulative gain or loss is not reclassified to profit or loss on disposal of the equity investments, instead, it is transferred to retained earnings. Dividends on these investments in equity instruments are recognised in profit or loss in accordance with MFRS 9, unless the dividends clearly represent a recovery of part of the cost of the investment. (iii) Financial assets at FVTPL Unless the Group designates investments in equity instruments as FVTOCI, all other equity investments are designated as FVTPL. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognised in profit or loss to the extent they are not part of a designated hedging relationship. Impairment of financial assets The Group recognises a loss allowance for expected credit losses (‘ECL’) on trade receivables, lease receivables and contract assets. The amount of expected credit losses is updated at the end of each reporting period to reflect changes in credit risk since initial recognition of the respective financial instrument. NOTES TO THE FINANCIAL STATEMENTS 74 KUB MALAYSIA BERHAD