KENANGA ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 127 ANNUAL REPORT 2018 3. ACCOUNTING POLICIES (CONT’D.) 3.4 Summary of significant accounting policies (cont’d.) (f) Financial instruments – initial recognition (Policy applicable from 1 January 2018) (cont’d.) (i) Initial recognition and subsequent measurement The classification of financial instruments at initial recognition depends on their contractual terms and the business model for managing the instruments, as described in Note 3.4(g)(i). Financial instruments are initially measured at their fair value (as defined in Note 3.4(j), except in the case of financial assets and financial liabilities recorded at FVTPL, transaction costs are added to, or subtracted from this amount. Trade receivables are measured at the transaction price. When the fair value of financial instruments at initial recognition differs from the transaction price, the Bank accounts for the Day 1 profit or loss, as described below. (ii) Day 1 profit or loss When the transaction price of the instrument differs from the fair value at origination and the fair value is based on a valuation technique using only inputs observable in market transactions, the Group and the Bank recognise the difference between the transaction price and fair value in net trading income. In those cases where fair value is based on models for which some of the inputs are not observable, the difference between the transaction price and the fair value is deferred and is only recognised in profit or loss when the inputs become observable, or when the instrument is derecognised. (iii) Measurement categories of financial assets and liabilities From 1 January 2018, the Group and the Bank classify all of their financial assets based on the business model for managing the assets and the asset’s contractual terms, measured at either: (a) Amortised cost, as explained in Note 3.4(g)(i) (b) FVOCI, as explained in Notes 3.4(g)(v) and 3.4(g)(vi) (c) FVTPL, as explained in Notes 3.4(g)(iv) and 3.4 (g)(viii) The Group and the Bank classify and measure their derivative and trading portfolio at FVTPL as explained in Notes 3.4(g)(ii) and 3.4(g)(iv). The Bank may designate financial instruments at FVTPL, if doing so eliminates or significantly reduces measurement or recognition inconsistencies, as explained in Note 3.4(g)(viii). Before 1 January 2018, the Group and the Bank classified its financial assets as available-for-sale, held- to-maturity (amortised cost), FVTPL or loans and receivables (amortised cost), as explained in Notes 3.4(g)(x), 3.4(g)(xi), 3.4(g)(xii) and 3.4(g)(xiii). Financial liabilities, other than loan commitments and financial guarantees, are measured at amortised cost or at FVTPL when they are held for trading and derivative instruments or the fair value designation is applied, as explained in Note 3.4(g)(viii). Financial liabilities are recognised in the statements of financial position when, and only when, the Group and the Bank become a party to the contractual provisions of the financial instrument. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.