2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 2.5 Financial instruments Financial instruments are classified and measured using accounting policies as mentioned below. The Group and the Bank have considered the impact of the pandemic and there are no changes to the Group’s and the Bank’s business model for managing the financial instruments. Initial recognition and measurement A financial asset or a financial liability is recognised in the statement of financial position when, and only when, the Group and the Bank becomes a party to the contractual provisions of the instrument. A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument. Classification and subsequent measurement On initial recognition, a financial asset is classified and measured at: amortised cost; FVOCI – debt instrument; FVOCI – equity instrument; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group and the Bank change its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. (a) Financial assets measured at amortised cost A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and profit on the principal amount outstanding. These assets are subsequently measured at amortised cost using effective profit rate method. These assets are stated net of unearned income and any impairment loss. Included in financial assets measured at amortised cost are financing, advances and others which consist of sale-based contracts (namely Bai’ Bithaman Ajil, Bai Al-Inah, Murabahah, Bai Al-Dayn and At-Tawarruq), leasebased contracts (namely Ijarah Muntahiah Bit- Tamleek, construction-based contract (Istisna’) and Ar-Rahnu contract. These financing contracts are recorded in the financial statements as financial assets measured at amortised cost based on concept of ‘substance over form’ and in accordance with MFRS 9. 281 1 2 3 4 5 6 7 8 9 www.bankislam.com FINANCIAL STATEMENTS
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