FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd) 7 Financial Instruments (cont'd)
3.7.2 Classification and measurement of financial assets (cont'd) (ii) Financial assets at fair value through profit or loss (“FVTPL”)
Financial assets that are held within a different business model other than ‘hold to collect’ or ‘hold to collect and sell’ are categorised at fair value through profit and loss. Further, irrespective of business model financial assets whose contractual cash flows are not solely payments of principal and interest are accounted for at FVTPL.
Assets in this category are measured at fair value with gains or losses recognised in profit or loss.
The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists.
3.7.3 Classification and subsequent measurement of financial liabilities
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss.
Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments).
All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income.
3.7.4 Derivative financial instruments
The Group enters into derivative financial instruments such as foreign currency forward contracts to manage its exposure to foreign currency risks.
Derivatives are initially recognised at fair value at the date the derivative contract is entered and are subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is recognised in profit or loss immediately.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non- current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
The Group has not designated any derivatives as hedging instruments.
3.7.5 Impairment of financial assets
MFRS’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected credit loss (“ECL”) model’. Instruments within the scope of the new requirements include loans, trade and other receivables and other debt-type financial assets measured at amortised cost and financial assets at FVOCI.
N O T E S T O T H E
F I N A N C I A L S T A T E M E N T S
3 1 M A R C H 2 0 2 0 ( C O N T ’ D )
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd) 3.7 Financial Instruments (cont'd)
3.7.5 Impairment of financial assets (cont'd)
Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event.
Instead, the Group considers a broader range of information when assessing credit risk and measuring ECL, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.
In applying this forward-looking approach, a distinction is made between:
- financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (“Stage 1’); and
- financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (“Stage 2”).
Stage 3 would cover financial assets that have objective evidence of impairment at the reporting date.
‘12-month ECL’ are recognised for the first category while ‘lifetime ECL’ are recognised for the second category.
Measurement of the ECL is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument.
Trade and other receivables
The Group makes use of a simplified approach in accounting for trade receivables and records the loss allowance as lifetime ECL. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating the ECL, the Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors such as external indicators surrounding the economic environment in which the debtor is operating.
For other receivables, the Group measures the loss allowance for other receivables equal to 12-month ECL, unless when there has been a significant increase in credit risk since initial recognition, the Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increase in the likelihood or risk of default occurring since initial recognition.
3.7.6 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is currently a legally enforceable 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.
N O T E S T O T H E
F I N A N C I A L S T A T E M E N T S
3 1 M A R C H 2 0 2 0 ( C O N T ’ D )
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd) 3.7 Financial Instruments (cont'd)
3.7.7 Derecognition (cont'd)
A financial asset or part of it is derecognised, when and only when the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in the profit or loss.
A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or cancelled or expired. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.
3.7.8 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 because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Fair value arising from the issuance of financial guarantee contracts are classified as deferred income and are amortised to profit or loss using a straight-line method over the contractual period or, when there is no specified contractual period, recognised in profit or loss upon discharge of the guarantee. When settlement of a financial guarantee contract becomes probable, an estimate of the obligation is made. If the carrying value of the financial guarantee contract is lower than the obligation, the carrying value is adjusted to the obligation amount and accounted for as a provision.
3.8 Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost is determined using the first-in, first-out formula. The cost of raw materials, packing materials and spare parts comprises all costs of purchase, cost of conversion plus other costs incurred in bringing the inventories to their present location and condition.
The cost of work-in-progress and finished goods includes the cost of raw materials, direct labour, other direct cost and attributable production overheads based on normal operating capacity of the production facilities.
Net realisable value represents estimated selling price in the ordinary course of business less selling and distribution costs and all other estimated costs to completion.
3.9 Non-current Assets Held for Sale
Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continued use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition subject only to terms that are usual and customary.
N O T E S T O T H E
F I N A N C I A L S T A T E M E N T S
3 1 M A R C H 2 0 2 0 ( C O N T ’ D )
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd)