39
SUNMOON FOOD COMPANY LIMITED
ANNUAL REPORT 2015
NOTES TO THE
FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
2.1
Basis of preparation of financial statements
(Continued)
FRS 109 – Financial Instruments
FRS 109 supersedes FRS 39 Financial Instruments: Recognition and Measurement with new requirements for
the classification and measurement of financial assets and liabilities, impairment of financial assets and
hedge accounting.
Under FRS 109, financial assets are classified into financial assets measured at fair value or at amortised cost
depending on the Group’s business model for managing the financial assets and the contractual cash flow
characteristics of the financial assets. Fair value gains or losses will be recognised in profit or loss except
for certain equity investments, for which the Group will have a choice to recognise the gains and losses in
other comprehensive income. A third measurement category has been added for debt instruments – fair
value through other comprehensive income. This measurement category applies to debt instruments that
meet the Solely Payments of Principal and Interest contractual cash flow characteristics test and where the
Group is holding the debt instrument to both collect the contractual cash flows and to sell the financial assets.
FRS 109 carries forward the recognition, classification and measurement requirements for financial liabilities
from FRS 39, except for financial liabilities that are designated at fair value through profit or loss, where
the amount of change in fair value attributable to change in credit risk of that liability is recognised in other
comprehensive income unless that would create or enlarge an accounting mismatch. In addition, FRS 109
retains the requirements in FRS 39 for de-recognition of financial assets and financial liabilities.
FRS 109 introduces a new forward-looking impairment model based on expected credit losses to replace the
incurred loss model in FRS 39. This determines the recognition of impairment provisions as well as interest
revenue. For financial assets at amortised cost or fair value through other comprehensive income, the Group
will now recognise (at a minimum) 12 months of expected losses in profit or loss. Lifetime expected losses
will be recognised on these assets when there is a significant increase in credit risk after initial recognition.
FRS 109 also introduces a new hedge accounting model designed to allow entities to better reflect their risk
management activities in their financial statements.
The Group plans to adopt FRS 109 in the financial year beginning on 1 January 2018 with retrospective effect
in accordance with the transitional provisions. There may be a potentially significant impact on the accounting
for financial instruments on initial adoption. Due to the recent release of this standard, the Group has not yet
made a detailed assessment of the impact of this standard, however the Group will be required to re-assess
the classification and measurement of financial assets, particularly those currently classified as available for
sale and the new impairment requirements are expected to result in changes for impairment provisions on
trade receivables and other financial assets not measured at fair value through profit or loss.
