MISC Annual Report 2019

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.3 Summary of significant accounting policies (cont’d.) (h) Financial assets (cont’d.) Subsequent measurement (cont’d.) Derecognition (cont’d.) When the Group and the Corporation have transferred their rights to receive cash flows from an asset or has entered into a “pass through” arrangement, they evaluate if, and to what extent, they have retained the risks and rewards of ownership. When they have neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group and the Corporation continue to recognise the transferred asset to the extent of their continuing involvement. In that case, the Group and the Corporation also recognise an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group and the Corporation have 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 the Group and the Corporation could be required to repay. (i) Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition as follows: financial liabilities at FVTPL or amortised cost, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of at amortised cost, net of directly attributable transaction costs. The Group’s and the Corporation’s financial liabilities include trade and other payables, loans and borrowings and derivative financial instruments. Subsequent measurement The subsequent measurement of financial liabilities depends on their classification, as described below: Financial liabilities at fair value through profit or loss Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as FVTPL. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group and the Corporation that are not designated as hedging instruments in hedge relationships as defined by MFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the income statement. Financial liabilities designated upon initial recognition at FVTPL are designated at the initial date of recognition, and only if the criteria in MFRS 9 are satisfied. The Group’s financial liabilities at FVTPL include derivative liabilities. 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.3 Summary of significant accounting policies (cont’d.) (i) Financial liabilities (cont’d.) Subsequent measurement (cont’d.) Loans and borrowings This category is the most relevant to the Group and the Corporation. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the income statement. This category generally applies to interest-bearing loans and borrowings. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. When 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 the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the income statement. Financial guarantee contracts A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs when the guaranteed debtor fails to make payment when due. Financial guarantee contracts are recognised initially as liabilities at fair value, net of transaction costs. Subsequent to initial recognition, financial guarantee contracts are recognised as income in profit or loss over the period of the guarantee. If the debtor fails to make payment relating to financial guarantee contract when it is due and the Group, as the issuer, is required to reimburse the holder for the associated loss, the liability is measured at the higher of: - the best estimate of the expenditure required to settle the present obligation at the reporting date; and - the amount initially recognised less cumulative amortisation. (j) Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 FINANCIAL STATEMENTS MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019 264 265