| CIM FINANCE. INTEGRATED REPORT 2022 122 EXPLANATORY NOTES 30 SEPTEMBER 2022 2. A CCOUNTING POLICIES (CONT’D) 2.7 Significant accounting policies (Cont’d) (n) Financial instruments - Initial recognition and subsequent measurement (i) Date of recognition Financial assets and liabilities, with the exception of deposits from customers and other borrowed funds, are initially recognised on the trade date, i.e., the date that the Group and the Company become a party to the contractual provisions of the instrument. Deposits from customers and other borrowed funds are recognised when funds reach the Group’s and the Company’s account. (ii) Initial measurement of financial instruments The classification of financial instruments at initial recognition depends on their contractual terms and the businessmodel for managing the instruments. All financial instruments are measured initially at their fair value, except in the case of financial assets and financial liabilities recorded at FVTPL transaction costs are added to, or subtracted from, this amount. When the fair value of financial instruments at initial recognition differs from the transaction price, the Group and the Company account for the Day 1 profit or loss, as described below. (iii) Day 1 profit or loss When the transaction price differs fromthe fair value of other observable currentmarket transactions in the same instrument, or based on a valuation techniquewith the variables including only data fromobservablemarkets, theGroup and the Company immediately recognises the difference between the transaction price and fair value (a Day 1 profit or loss) in profit or loss. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognised in profit or loss when the inputs become observable, or when the instrument is derecognised. (iv) Measurement categories of financial assets and liabilities The Group and the Company classify all of its financial assets based on the business model for managing the assets and the asset’s contractual terms, measured at either: • Amortised cost • Fair value through profit or loss (FVTPL). Themeasurement of amortised cost is explained in note (n)(v) and fair value through profit or loss is explained in note (n)(ix). The Group’s and the Company’s Financial liabilities are measured at amortised cost. (v) Deposits with banks, loans and advances, and receivables. Deposits with banks and loans, advances to customers and receivables consisted of non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, amounts due from these financial assets are subsequentlymeasured at amortised cost using the EIRmethodology, less allowances for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of EIR. Therefore, the Group and the Company recognise interest income using a rate of return that represents the best estimate of a constant rate of return over the expected behavioural life of the loan, hence, recognising the effect of potentially different interest rates charged at various stages, and other characteristics of the product life cycle (prepayments, penalty interest and charges). If expectations are revised, the adjustment is booked as a positive or negative adjustment to the carrying amount in the balance sheet with an increase or reduction in interest income. The adjustment is subsequently amortised through interest and similar income in profit or loss. The Group and the Company onlymeasure deposits with banks, loans and advances to customers, receivables and financial investments at amortised cost if both of the following conditions are met: • The financial asset is heldwithin a businessmodel with the objective to hold financial assets in order to collect contractual cash flows. • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
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