AL-SALAM REIT ANNUAL REPORT 2019

AL-SALĀM REIT • 141 ANNUAL REPORT 2019 For The Financial Year Ended 31 December 2019 (Cont’d) 21. FAIR VALUES OF FINANCIAL INSTRUMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. The carrying amount of the various financial assets and financial liabilities reflected in the statements of financial position approximate their fair values other than as disclosed below: Carrying Fair amount value The Group RM RM 2019 Financial liability at amortised cost Islamic financing - non-current 86,000,816 70,303,432 Islamic financing - current 511,531,837 511,531,837 2018 Financial liability at amortised cost Islamic financing - non-current 509,527,596 480,815,308 Carrying Fair amount value The Fund RM RM 2019 Financial liability at amortised cost Islamic financing - non-current 86,000,816 70,303,432 Islamic financing - current 349,486,991 349,486,991 Amount owing to a subsidiary 160,303,801 160,303,801 595,791,608 580,094,224 2018 Financial liability at amortised cost Islamic financing - non-current 348,592,979 323,399,500 Amount owing to a subsidiary 159,317,928 157,415,808 507,910,907 480,815,308 The fair value of the non-current Islamic financing was estimated using discounted cash flow analysis based on market equivalent profit rate of 5.46% (2018: 5.58%) per annum for similar type of instruments of similar risk and cash flow profiles. The disclosure of the fair value of the non-current Islamic financing is considered a Level 2 fair value hierarchy disclosure. 22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s and the Fund’s financial risk management policies seek to ensure that adequate financial resources are available for the development of the Group’s and Fund’s portfolios whilst managing their credit risks, liquidity risks and financing rate risks. The Group and the Fund have taken measures to minimise their exposure to the risks associated with its financing, investing and operating activities and operates within clearly defined guidelines as set out in the SC Guidelines and the Fund’s Trust Deed. The following sections provide details regarding the Group’s and the Fund’s exposure to the above-mentioned financial risks and the objectives, policies and procedures for the management of these risks: (a) Credit Risk Management Credit risk refers to the risk that a counter party will default on its contractual obligation resulting in financial loss to the Group and the Fund. Credit risk with respect to trade and other receivables is managed through the application of credit approvals, credit limits and monitoring procedures. Credit is extended to the customers based upon careful evaluation of the customers’ financial condition and credit history. Notes To The Financial Statements