MKH Annual Report 2019

104 A N N U A L R E P O R T 2 0 1 9 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONT’D) (a) Statement of compliance (Cont’d) Impact of initial application of MFRS 9 Financial Instruments (Cont’d) Classification and measurement of financial assets The date of initial application (i.e. the date on which the Group and the Company have assessed its existing financial assets and financial liabilities in terms of the requirements of MFRS 9) is on 1 October 2018. Accordingly, the Group and the Company have applied the requirements of MFRS 9 to instruments that continue to be recognised as at 1 October 2018 and have not applied the requirements to instruments that have already been derecognised as at 1 October 2018. All recognised financial assets that are within the scope of MFRS 9 are required to be measured subsequently at amortised cost or fair value on the basis of the business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. The directors of the Group and the Company reviewed and assessed the Group’s and the Company’s existing financial assets as at 1 October 2018 based on the facts and circumstances that existed at that date and concluded that the initial application of MFRS 9 has had a classification and measurement impact on the Group’s and the Company’s financial assets. Financial assets classified as loans and receivables under MFRS 139 that were measured at amortised cost continue to be measured at amortised cost under MFRS 9 as they are held within the business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding. None of the above reclassifications of financial assets have had any impact on the Group and the Company’s financial position, profit or loss, other comprehensive income or total comprehensive income. Impairment In relation to the impairment of financial assets, MFRS 9 requires an expected credit loss (“ECL”) model, as opposed to an incurred loss model under MFRS 139. The expected credit loss model requires the Group and the Company to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised. MFRS 9 requires a simplified approach for measuring the loss allowance at an amount equal to lifetime ECL for trade receivables, contract assets and lease receivables in certain circumstances. The application of expected credit loss model of MFRS 9 has had no material impact to the Group’s and the Company’s financial statements. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2019