KENANGA ANNUAL REPORT 2017

3. ACCOUNTING POLICIES (CONT’D.) 3.4 Summary of significant accounting policies (cont’d.) (f) Financial assets (cont’d.) (i) Initial recognition and subsequent measurement (cont’d.) (1) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held-for-trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments entered into by the Group and the Bank that are not designated as hedging instruments in hedge relationships as defined by MFRS 139. Derivatives, including separated embedded derivatives are also classified as held-for-trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit and loss are carried in the statements of financial position at fair value with changes in fair value recognised in profit or loss. The Group and the Bank evaluate its financial assets held-for-trading, other than derivatives, to determine whether the intention to sell them in the near term is still appropriate. When the Group and the Bank are unable to trade these financial assets due to inactive markets and management’s intention to sell them in the foreseeable future significantly changes, the Group and the Bank may elect to reclassify these financial assets in rare circumstances. The reclassification to loans and receivables, financial investments available- for-sale or financial investments held-to-maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation. Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held-for-trading or designated at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. The specific accounting policy on derivatives is detailed in Note 3.4(o). (2) Financial investments available-for-sale (“AFS”) Financial investments AFS include equity investments and debt securities. Equity investments classified as AFS are those that are neither classified as held-for-trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions. The Group has not designated any loans, advances and financing as AFS. After initial measurement, financial investments AFS are subsequently measured at fair value with unrealised gains or losses recognised in other comprehensive income in the “AFS reserve” until the investment is derecognised, at which time the cumulative gain or loss is recognised in “other operating income”, or the investment is determined to be impaired, when the cumulative loss is reclassified from the “AFS reserve” to profit or loss in “impairment losses on financial investments”. Interest income on AFS debt securities is calculated using the effective interest method and is recognised in profit or loss. Foreign exchange gains and losses on monetary instruments are recognised in profit or loss. Dividends on an AFS equity investment are recognised in profit or loss when the right to receive payment is established. Equity investments whose fair value cannot be reliably measured are measured at cost less impairment loss. Annual Report 2017 31 December 2017 107 notes to the financial statements