Page 95 - HRC_AR2020

HENGYUAN REFINING COMPANY BERHAD I 93

2 sUMMarY of siGnificant accoUntinG policies (continued)
2.12 financial liaBilities
Financial liabilities are classified according to the substance of the contractual arrangements entered into and the
definitions of a financial liability.
(a) classification
Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial
liabilities.
(i) financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities held
for trading include derivatives entered into by the Company that do not meet the hedge accounting
criteria. Liabilities in this category are classified within current liabilities if they are either held for trading
or are expected to be settled within 12 months after the reporting date. Otherwise, they are classified as
non-current.

(ii) other financial liabilities
The Company’s other financial liabilities include trade payables, other payables, intercompany payables,
lease liabilities and borrowings. Lease liabilities and loans and borrowings are classified as current liabilities
unless the Company has an unconditional right to defer settlement of the liability for at least 12 months
after the reporting date.
(b) recognition and initial measurement
Derivative liabilities are initially measured at fair value. Trade and other payables are recognised initially at fair
value plus directly attributable transaction costs. Loans and borrowings are recognised initially at fair value, net of
transaction costs incurred. Lease liabilities are recognised initially at the present value of the lease payments not
paid at that date.
(c) subsequent measurement – gains and losses

Derivative liabilities are subsequently stated at fair value, with any resultant gains or losses recognised in profit
or loss. Net gains or losses on derivatives include exchange differences. Trade and other payables and loans and
borrowings are subsequently measured at amortised cost using the effective interest method. Lease liabilities are
subsequently measured by increasing the carrying amount to reflect interest, and to reduce the carrying amount
to reflect the lease payments made. For other financial liabilities, gains and losses are recognised in the profit or
loss when the financial liabilities are derecognised, and through amortisation process.
(d) Derecognition

A financial liability is derecognised when the obligation under the liability is extinguished. When 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, and the difference in the respective carrying amounts is
recognised in profit or loss.