EXCEL FORCE MSC BERHAD Annual Report 2019

EXCEL FORCE MSC BERHAD - ANNUAL REPORT 2019 115 notes to the financial statements 31 december 2019 (cont’d) 35. Financial Instruments (Cont’d) (c) Fair value of financial instruments (Cont’d) (i) Policy on transfer between levels The fair value of an asset to be transferred between levels is determined as of the date of the event or change in circumstances that caused the transfer. There were no transfers between levels during the current and previous financial years. (ii) Level 1 fair value Level 1 fair value is derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. (iii) Level 2 fair value Level 2 fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Non-derivative financial instruments Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the end of the reporting period. (iv) Level 3 fair value Level 3 fair value for the financial assets and liabilities are estimated using unobservable inputs. The following table shows the valuation techniques used in the determination of fair values within Level 3, as well as key unobservable inputs used in the valuation method. Financial instruments not carried at fair value Type Description of valuation technique and inputs used Loan to subsidiary companies Discounted cash flows using a rate based on the current market rate of borrowing of the respective Group entities at the reporting date. 36. Capital Management The Group’s and the Company’s objectives when managing capital are to safeguard the Group’s and the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group and the Company monitors capital using a gearing ratio. The Group’s and the Company’s policy is to maintain a prudent level of gearing ratio that complies with debt covenants and regulatory requirements. The gearing ratios at end of the reporting period are as follows: