MISC Annual Report 2017

NOTES TO THE FINANCIAL STATEMENTS MISC BERHAD | Annual Report 2017 186 2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) 2.3 Summary of significant accounting policies (cont'd.) (j) Financial liabilities Initial recognition: Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and borrowings or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. Financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transactions costs. The Group's financial liabilities include trade and other payables, loans and borrowings, and derivative financial instruments. Subsequent measurement: The subsequent measurement of financial liabilities depends on their classification as follows: (i) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss comprise financial liabilities that are derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument) and financial liabilities that are specifically designated into this category upon initial recognition. Financial liabilities, categorised as fair value through profit or loss are subsequently measured at their fair value, with gains or losses recognised in the income statement. The Group has not designated any financial liabilities at fair value through profit or loss for the years ended 31 December 2017 and 31 December 2016. (ii) Loans and borrowings Subsequent to initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the financial liabilities are derecognised as well as through the amortisation process. (iii) Financial guarantee contracts A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make a payment when due, in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Financial guarantee contracts are amortised on a straight-line basis over the contractual period of the debt instrument. Where the guarantee does not have a specific period, the guarantee will only be recognised in the income statement upon discharge of the guarantee.