Annual Report 2012 - IOI Group

5. SIGNIFICANT ACCOUNTING POLICIES (Continued)5.14 Financial Instruments (Continued)5.14.2 Financial liabilitiesFinancial instruments are classified as liabilities or equity in accordance with the substance of the contractualarrangement. A financial liability is classified into the following two categories after initial recognition for thepurpose of subsequent measurement:i. Financial liabilities at fair value through profit or lossFinancial liabilities at fair value through profit or loss comprise financial liabilities that are held for trading,derivatives (both, freestanding and embedded) and financial liabilities that were specifically designated intothis classification upon initial recognition.Subsequent to initial recognition, financial liabilities classified as at fair value through profit or loss aremeasured at fair value. Any gains or losses arising from changes in the fair value of financial liabilities classifiedas at fair value through profit or loss are recognised in profit or loss. Net gains or losses on financial liabilitiesclassified as at fair value through profit or loss exclude foreign exchange gains and losses, interest anddividend income. Such income is recognised separately in profit or loss as components of other income orother operating losses.ii.Other financial liabilitiesFinancial liabilities classified as other financial liabilities comprise non-derivative financial liabilities that areneither held for trading nor initially designated as at fair value through profit or loss.Subsequent to initial recognition, other financial liabilities are measured at amortised cost using the effectiveinterest method. Gains or losses on other financial liabilities are recognised in profit or loss when the financialliabilities are derecognised and through the amortisation process.A financial liability is derecognised when, and only when, it is extinguished, i.e. when the obligation specified in thecontract is discharged or cancelled or expires. An exchange between an existing borrower and lender of debtinstruments with substantially different terms are accounted for as an extinguishment of the original financialliability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of anexisting financial liability is accounted for as an extinguishment of the original financial liability and the recognitionof a new financial liability.The difference between the carrying amount of a financial liability extinguished or transferred to another party andthe consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.All financial liabilities of the Group are measured at amortised cost except for financial liabilities at fair value throughprofit or loss, which are held for trading (including derivatives) or designated at fair value through profit or loss uponinitial recognition. Financial liabilities designated at fair value through profit or loss include exchangeable bonds.A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse theholder for a loss it incurs because a specified debtor fails to make payment when due in accordance with theoriginal or modified terms of a debt instrument.Annual Report 2012IOI CORPORATION BERHAD 145