Annual Report 2019

Explanatory Notes 30 SEPTEMBER 2019 2. ACCOUNTING POLICIES (CONT’D) 2.6 Significant accounting policies (Cont’d) (n) Financial instruments - Initial recognition and subsequent measurement (Cont’d) (viii) Solely Payments of Principal and Interest (SPPI) test Assessment of whether contractual cash flows are solely payments of principal and interest. For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest, the Company considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. (ix) Available for sale investments – policy effective prior to 1 October 2018 Available for sale investments included equity securities. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated at FVTPL. After initial measurement, available for sale financial investments are subsequently measured at fair value. Unrealised gains and losses are recognised in other comprehensive income in equity. When the investment is disposed of, the cumulative gain or loss previously recognised in equity is recognised in profit or loss. Dividends earned whilst holding available for sale financial investments are recognised in profit or loss when the right of the payment has been established. The losses arising from impairment of such investments are recognised in profit or loss. (x) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss prior 1 October 2018 included 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. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39. Subsequent to 1 October 2018, financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to bemeasured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch. Financial assets at fair value through profit or loss are carried in the statement of fnancial position at fair value with net changes in fair value presented at other operating income in the statement of profit or loss. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. (xi) Deposit from customers and other borrowed funds Financial instruments issued by the Group that are not held for trading or designated at FVTPL are classified as liabilities as either deposit from customers or other borrowed funds, where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. After initial measurement, deposit from customers and other borrowed funds are subsequently measured at amortised cost using the EIR. Amortised cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the EIR. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. CIM FINANCIAL SERVICES LTD / ANNUAL REPORT 2019 88