AfrAsia Bank - Annual Report 2015

AfrAsia Bank Limited and its Group Entities

Annual Report 2015

page 203

noteS to the finanCial StatementS

for the year ended 30 June 2015

2. ACCOUNTING POLICIES (CONTINUED)

2.5 Summary of significant accounting policies (Continued)

(b) Financial instruments - initial recognition and subsequent measurement (Continued)

(x) Reclassification of financial assets

Effective from 1 July 2008, the Group were permitted to reclassify, in certain circumstances, non-derivative financial assets out of the ‘Held-for-trading’ category

and into the ‘Available-for-sale’, ‘Loans and receivables’, or ’Held-to-maturity’ categories. From this date it was also permitted to reclassify, in certain circumstances,

financial instruments out of the ‘Available-for-sale’ category and into the ’Loans and receivables’ category. Reclassifications are recorded at fair value at the date of

reclassification, which becomes the new amortised cost.

The Group may reclassify a non-derivative trading asset out of the ‘Held-for-trading’ category and into the ‘Loans and receivables’ category if it meets the definition of

loans and receivables and the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified,

and if the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase

is recognised as an adjustment to the EIR from the date of the change in estimate.

For a financial asset reclassified out of the ’Available-for-sale’ category, any previous gain or loss on that asset that has been recognised in equity is amortised to profit

or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the

remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired then the amount recorded in ‘Other comprehensive income’ is recycled

to profit or loss.

Reclassification is at the election of management, and is determined on an instrument by instrument basis. The Group do not reclassify any financial instrument into

the fair value through profit or loss category after initial recognition.

(i) Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

the contractual rights to receive cash flows from the asset have expired;

the Group or the Bank has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without

material delay to a third party under a ‘pass-through’ arrangement; and either

a. the Group or the bank has transferred substantially all the risks and rewards of the asset, or

b. the Group or the Bank has neither transferred nor retained substantially all the risks and rewards on the asset, but has transferred control of the asset.

When the Group or the Bank has transferred its rights to receive cash flows from an asset or has entered into a ‘pass-through’ arrangement, and has neither transferred

nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s and the Bank’s

continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on

a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the

maximum amount of consideration that the Group could be required to repay.

(ii) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by

another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is

treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and

the consideration paid is recognised in profit or loss.