Registration No. 200301030845 (633265-K) - 49 - 3. Significant Accounting Policies (Cont’d) (i) 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 when the guaranteed debtor fails to make payment when due. Financial guarantee contracts are recognised initially as liabilities at fair value, net of transaction costs. Subsequent to initial recognition, financial guarantee contracts are recognised as income in profit or loss over the period of the guarantee. If the debtor fails to make payment relating to financial guarantee contract when it is due and the Group or the Company, as the issuer, is required to reimburse the holder for the associated loss, the liability is measured at the higher of: - the best estimate of the expenditure required to settle the present obligation at the reporting date; and - the amount initially recognised less cumulative amortisation. Liabilities arising from financial guarantees are presented together with other provisions. (j) Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. (k) Inventories Inventories are stated at the lower of cost and net realisable value. Inventories which comprise raw materials, spare part and consumables, work-inprogress and finished goods are stated at the lower of cost and net realisable value. Cost of raw material comprise cost of purchase and other costs incurred in bringing it to their present location and condition are determined on a first-in-first-out basis. Cost of finished goods and work-in-progress consists of direct material, direct labour and an appropriate proportion of production overheads (based on normal operating capacity) are stated on a first-in-first-out. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. 127 ANNUAL REPORT 2022 DESTINI BERHAD
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