188 YINSON HOLDINGS BERHAD ACCOUNTABILITY 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 2.16 Financial instruments (continued) (ii) Impairment of financial assets (continued) (b) Simplified approach for trade receivables and contract assets The Group and the Company apply the MFRS 9 simplified approach to measure ECL which uses a lifetime ECL for all trade receivables and contract assets. The Group and the Company define a financial instrument as being in default, which is fully aligned with the definition of credit-impaired, when it meets one or more of the following criteria: (i) Quantitative criteria The Group and the Company define a financial instrument as being in default, when the counterparty fails to make contractual payment within 90 days of when they fall due. (ii) Qualitative criteria The debtor meets the unlikeliness to pay criteria, which indicates the debtor is in significant financial difficulty. The Group and the Company consider the following instances: • the debtor is in breach of financial covenants; • concessions have been made by the lender relating to the debtor’s financial difficulty; • it is becoming probable that the debtor will enter bankruptcy or other financial reorganisation; and • the debtor is insolvent. (iii) Financial liabilities (a) Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, lease liabilities, financial guarantee contracts and derivative financial instruments. (b) Subsequent measurement The measurement of financial liabilities depends on their classification, as described below: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include derivative financial instruments and financial liabilities designated upon initial recognition as at fair value through profit or loss. Derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by MFRS 9 are classified as held for trading. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in profit or loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in MFRS 9 are satisfied.
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