(n) Financial instruments - Initial recognition and subsequent measurement (i) Date of recognition Financial assets and liabilities 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. 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 business model 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 from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique with the variables including only data from observable markets, the Group and the Company immediately recognise 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). The measurement 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 financial assets at amortised cost. 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 subsequently measured at amortised cost using the EIR methodology, less allowances for expected credit losses. 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 only measure deposits with banks, loans and advances to customers, receivables and financial assets at amortised cost if both of the following conditions are met: • T he financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows. • T he 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. (vi) Effective interest rate The effective interest rate (EIR) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate a shorter period, to the net carrying amount of the financial asset or financial liability. The amortised cost of the financial asset or financial liability is adjusted if the Group and the Company revise its estimates of payments or receipts. The adjusted amortised cost is calculated based on the original or latest re-estimated EIR and the change is recorded as ‘interest income’ for financial assets and ‘interest expense’ for financial liabilities. 135 Introduction Group Overview Leadership Strategy & Performance Risk Management Corporate Governance Statutory Disclosures Financial
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