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.) (2) Financial investments available-for-sale (“AFS”) (cont’d.) The Group and the Bank evaluate whether the ability and intention to sell its financial investments AFS in the near term is still appropriate. When the Group and the Bank are unable to trade these financial investments due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group and the Bank may elect to reclassify these financial investments in rare circumstances. Reclassification to loans and receivables is permitted when the financial investments meet the definition of loans and receivables and the Group and the Bank have the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held-to-maturity category is permitted only when the Group and the Bank have the ability and intention to hold the financial investments accordingly. For a financial investment reclassified from AFS category, any previous gain or loss on that investment that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest method. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the investment using the effective interest method. If the investment is subsequently determined to be impaired, then the amount recorded in equity is reclassified to profit or loss. (3) Financial investments held-to-maturity Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as financial investments held-to-maturity when the Group and the Bank have the positive intention and ability to hold them to maturity. After initial measurement, financial investments held-to-maturity are measured at amortised cost using the effective interest method less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate (“EIR”). The EIR amortisation and losses arising from impairment of such investments are recognised in profit or loss. If the Group and the Bank were to sell or reclassify more than an insignificant amount of financial investments held-to-maturity before maturity (other than in certain specific circumstances), the entire category would be tainted and would have to be reclassified as AFS. Furthermore, the Group and the Bank would be prohibited from classifying any financial investments as held-to-maturity during the following two years. (4) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method less allowance for impairment. Gains and losses are recognised in profit or loss when the loans are impaired, and through the amortisation process. Kenanga Investment Bank Berhad 31 December 2017 108 notes to the financial statements