179 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2022 KENANGA INVESTMENT BANK BERHAD Annual Report 2022 3. ACCOUNTING POLICIES (CONT’D.) 3.4 Summary of significant accounting policies (cont’d.) (s) Income recognition (cont’d.) The Group and the Bank satisfy a performance obligation and recognise revenue over time if the Group’s and the Bank’s performance: • Do not create an asset with an alternative use to the Group and the Bank, and have an enforceable right to payment for performance completed to-date; or • Create or enhance an asset that the customer controls as the asset is created or enhanced; or • Provide benefits that the customer simultaneously receives and consumes as the Group and the Bank perform. For performance obligations where any one of the above conditions is not met, revenue is recognised at the point in time at which the performance obligation is satisfied. When the Group and the Bank satisfy a performance obligation by delivering the promised goods or services, it creates a contract based asset on the amount of consideration earned by the performance. Where the amount of consideration received from a customer exceeds the amount of revenue recognised, this gives rise to a contract liability. (i) The effective interest rate method Interest income is recorded using the effective interest rate method for all financial instruments measured at amortised cost and financial instruments designated at FVTPL. Interest income on interest bearing financial assets measured at FVOCI under MFRS 9 is also recorded by using the EIR method. The EIR is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset. The EIR (and therefore, the amortised cost of the asset) is calculated by taking into account any discount or premium on acquisition, fees and costs that are an integral part of the EIR. The Group and the Bank recognise interest income using a rate of return that represents the best estimate of a constant rate of return over the expected life of the loan. Hence, it recognises the effect of potentially different interest rates charged at various stages, and other characteristics of the product life cycle (including prepayments, penalty interest and charges). If expectations regarding the cash flows on the financial asset are revised for reasons other than credit risk, the adjustment is booked as a positive or negative adjustment to the carrying amount of the asset in the balance sheet with an increase or reduction in interest income. The adjustment is subsequently amortised through interest and similar income in the income statement.
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