Mega Bank Annual Report 2017

44 Mega Bank -44- flows of the foreign currency transactions or balances at the measurement date. Foreign currency non-monetary items measured at historical cost should be reported using the exchange rate at the date of the transaction. Foreign currency non-monetary items measured at fair value should be reported at the rate that existed when the fair values were determined. Exchange differences arising when foreign currency transactions are settled or when monetary items are translated at rates different from those at which they were translated when initially recognized or in previous financial statements are reported in profit or loss in the period. If a gain or loss on a non-monetary item is recognized in other comprehensive income, any foreign exchange component of that gain or loss is also recognized in other comprehensive income. Conversely, if a gain or loss on a non-monetary item is recognized in profit or loss, any foreign exchange component of that gain or loss is also recognized in profit or loss. C. Translation of foreign operations The operating results and financial position of the entire Ban k and subsidiaries’ entities in the consolidated financial statements that have a functional currency (which is not the currency of a hyperinflationary economy) different from the presentation currency are translated into the presentation currency as follows: (A) Assets and liabilities presented are translated at the Bank and subsidiaries’ closing exchange rate at the date of that balan ce sheet; (B) The profit and loss presented is translated by the average exchange rate in the period (except for the situation that the exchange rate on the trade date shall be adopted when the exchange rate fluctuate rapidly); and (C) All resulting exchange differences are recognized in other comprehensive income. The translation differences arising from above processes are recognized a s ‘Cumulative translation differences of foreign operations’ under equity items. (5) Cash and cash equivalents “Cash and cash equivalents” in the consolidated balance sheet includes cash on hand, due from other banks, short -term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value. In respect of the consolidated statements of cash flows, cash and cash equivalents include cash and cash equivalents in the consolidated balance sheet, due from the central bank and call loans to banks meeting the definition of cash and cash equivalents as stated in IAS No.7 “Cash Flow Statements” , and securities purchased under resale agreements meeting the definition of cash and cash equivalents as st ated in IAS No. 7 “Cash Flow Statements” as endorsed by the FSC. (6) Bills and bonds under repurchase or resale agreements The transactions of bills and bonds with a condition of repurchase agreement or resell agreement are accounted for under the financing method. The interest expense and interest income are recognized as incurred at the date of sale and purchase and the agreed period of sale and purchase. The repo trade liabilities, bond liabilities, reverse repo trade bills and bond investments are recognized at the date of sale or purchase. (7) Financial assets or liabilities The financial assets and liabilities of the Bank and subsidiaries including derivatives are recognized in the consolidated balance sheet and are properly classified in accordance with IFRSs as endorsed by the FSC. ! A. Financial assets The IFRSs as endorsed by the Financial Supervisory Commission apply to the entire Bank and subsidiaries’ financial assets, wh ich are classified into four categories: loans and receivables, financial assets at fair value through profit or loss, available-for-sale financial assets and held-to-maturity financial assets. (A) A regular way purchase or sale Financial assets that are purchased or sold on a regular way purchase or sale basis should be recognized and derecognized using trade date accounting or settlement date accounting. The uniform accounting principles should be applied in the accounting for purchase and sale of financial assets of the same type. All the Bank and subsidiaries’ financial assets are accounted fo r using trade date accounting. (B) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. There are two types of loans and receivables: one is originated by the Bank and subsidiaries; the other is not originated by the Bank and subsidiaries. Loans and receivables originated by the entity refer to the direct provision by the Bank and subsidiaries of money, merchandise or services to debtors, and loans and receivables not originated by the Bank and subsidiaries are loans and receivables other than those originated by the Bank and subsidiaries. Loans and receivables are initially recognized at fair value, which includes the price of transaction, significant costs of transaction, significant handling fees paid or received, discount and premium, etc., and subsequently measured using the effective interest method. However, if the effect of discount is insignificant, following the “Regulations Governing the Preparation of Financial Reports by Public Banks”, loans and receivables can be measured at initial amount. Interest accruing on loans and receivables is recognized as ‘interest revenue’. An impairment loss is recognized when there i s an objective evidence of impairment on loans and receivables. Allowance for impairment is a deduction to carrying amount of loans and receivables, which is under the ‘allowance for bad debts and reserve for guarantee liabilities’ account.