Page 151 - Pakistan Oilfield Limited - Annual Report 2022

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Annual Report 2022

4.20 Financial assets
Classification

The Company classifies its financial assets in the following measurement categories:
(i) Amortised cost where the effective interest rate method will apply;
(ii) Fair value through profit or loss (FVTPL); and
(iii) Fair value through other comprehensive income (FVTOCI)
The classification depends on the entity’s business model for managing the financial assets and
the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or other
comprehensive income (OCI). For investments in equity instruments that are not held for trading,
this will depend on whether the Company has made an irrevocable election at the time of initial
recognition to account for the equity investment at fair value through other comprehensive
income (FVTOCI).
The Company reclassifies debt investments when and only when its business model for managing
those assets changes.

Recognition and derecognition

Regular way purchases and sales of financial assets are recognised on trade-date, the date on which
the Company commits to purchase or sell the asset. Further, financial assets are derecognised when
the rights to receive cash flows from the financial assets have expired or have been transferred and
the Company has transferred substantially all the risks and rewards of ownership.

Measurement
At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a
financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the
financial asset. Transaction costs of financial assets carried at FVTPL are expensed in statement of
profit or loss.

Debt instruments
Subsequent measurement of debt instruments depends on the Company’s business model for
managing the asset and the cash flow characteristics of the asset. There are three measurement
categories into which the Company can classify its debt instruments:

a) Amortised cost
Financial assets that are held for collection of contractual cash flows where the contractual terms
of the financial assets give rise on specified dates to cash flows that represent solely payments of
principal and interest, are measured at amortised cost. Interest income from these financial assets
is included in other income using the effective interest rate method. Any gain or loss arising on
derecognition is recognised directly in profit or loss and presented in other income together with
foreign exchange gains and losses. Impairment losses are presented as separate line item in the
statement of profit or loss.