In year 2004, Hong Leong Industries Berhad uses derivatives such as forward foreign

exchange contracts and interest rate swaps to hedge its exposure of foreign exchange and interest
rate risks arising from operational, financing and investment activities. All derivatives are
recorded at the market prices at the financial year end date. The risks of fluctuation on market
rates are being offset using the hedge accounting with the hedged items. The currency being
hedged is usually the US dollar, Ringgit Malaysia, Euro and Japanese Yen. The total amount of
RM 554,696,000 forward foreign exchange contracts is not recognised in the balance sheet but
just being disclosed in the notes to the account. While, MASs policy on using of derivative
financial instruments is not to trade but use these instruments as hedges against specific
exposures. MAS enter into the forward foreign exchange contracts to cover a portion of future
capital, revenue and operating payments in a variety of currencies in order to manage its foreign
currency risk. Gains or losses in these two contracts are recognised in the income statement as
realised exchange differences and a component of fuel costs respectively. However, operation of
the LFIB Group just subject to a variety of financial risks, including foreign currency risk,
interest rate risk, credit risk, liquidity risk and cash flow risk. It also same with KYM Holding
Berhad, fair value is defined as the amount at which the financial instrument could be exchanged
in a current transaction between knowledgeable willing parties in an arm's length transaction,
other than in a forced sale or liquidation. Fair values are obtained from quoted market prices,
discounted cash flow models and option pricing models as appropriate.
In year 2006, Hong Leong Industries Berhad uses same derivatives as year 2004.
However, MAS adopt FRS 132 Financial Instruments: Disclosure and Presentation for the
financial periods beginning on 1 January 2006. It same as the year 2004, MAS uses derivative
financial instrument such as fuel contracts, foreign currency contracts and interest rate contracts
to hedge its fuel price risks, foreign exchange risks and interest rate risks respectively. Besides
that, LFIB is also some as the financial year 2004. The fair values of the hire-purchase payables
and long-term borrowings of the Group are estimated using discounted cash flow analysis based
on current borrowing rates for similar types of borrowing arrangements. The fair value of noncurrent intercompany indebtedness of the Group and the Company is estimated using the
discounted cash flow analysis based on current borrowing rate for similar type of borrowing
arrangement. KYM Holding Berhad used different method and assumption to estimate the fair
value of each class of financial instruments. For example, long term borrowings which the
carrying amounts approximated the fair values of the instruments. The fair values of the long
term borrowings are determined by discounting the relevant cash flows using current interest
rates for similar instruments at the balance sheet date.
In 2010, Hong Leong Industries Berhad did not apply the FRSs, amendments to FRSs
and Interpretations on Financial Instruments and derivatives as well as hedge accounting.
Derivatives not qualify for hedging purposes are accounted for as trading instruments and
marked to market at balance sheet date. Any profit or loss of the derivatives is recognised in the
income statement upon realisation. There are still amount being disclosed in the notes but not in

the balance sheet for the forward foreign exchange contracts for total of RM 83,116,000.
However, at the beginning of the current financial year, the other three company such as MAS,
LFIB and KYM Holding Berhad had early adopted FRS 139 Financial Instruments: Recognition
and Measurement and FRS 7: Financial Instruments: Disclosures, they will result significant
changes in the accounting policies.
FRS 7 and the consequential amendment to FRS 101 Presentation of Financial
Statements require disclosure of information about the significance of financial instruments for
the Groups and the Companys financial position and performance, the nature and extent of
risks arising from financial instruments, and the objectives, policies and processes for managing
capital. The amendments to FRS 7 expand the disclosures required in respect of fair value
measurements and liquidity risk.
FRS 139 Financial Instruments: Recognition and Measurement is the new standard
establishes principles for recognising and measuring financial assets, financial liabilities and
certain contracts to buy and sell non-financial items. By virtue of the exemption provided in
paragraph 44AB of FRS 7 and paragraph 103AB of FRS 139, the impact of applying FRS 7 and
FRS 139 on the Groups and the Companys financial statements upon initial application of these
standards as required by paragraph 30(b) of FRS 108 is not disclosed.
In 2011 financial report, Hong Leong Industries Berhad adopted FRS 139, Financial
Instruments: Recognition and Measurement. Before the financial year which is date before 1 July
2010, the company using different accounting policies for financial instruments. Prior to
financial year 2011, the company is applying FRS 132, Financial Instruments: Disclosure and
Presentation. FRS 7, Financial Instruments: Disclosures is being adopted by the company
beginning of the financial year ended 30 June 2011. Under this standard, the company discloses
the qualitative and quantitative information about the exposure risks. The newly adopted FRS 7
is applied prospectively in accordance with the transition provision. The financial assets are
categorised into different classes and the figure for 2010 is not restated because the company
adopted FRS 139 prospectively. The effect of adopting the new standard is being stated in the
notes to the accounts. In financial year 2011, the Company and the Group recognised their
derivatives in the Statements of Financial Position. In previous years, the derivatives financial
assets are just being disclosed in the notes to the accounts. Any fair value gain on the derivatives
is accounted into the profit before taxation. After adopting the new standard on financial
instruments, Hong Leong Industries Berhad disclosed more information on the financial
instruments in term of quantitative figures as well as the qualitative risk assessment. This
provides the user extra information on making decision and assessing the risk of contracts
entered by the company.
In year 2011 and 2012, MAS adopt the same standard as per year 2010, which are FRS 7
and FRS 139. MAS analyses their Groups and Companys derivative financial liabilities into
relevant maturity groupings based on the remaining period at the reporting date to the contractual

maturity date. Total carrying amount of the fuel hedging contract is RM 5,246,000 in year 2011,
which only demand or within 1 year so called current liabilities. In the other hand, it also same as
the interest rate hedging and foreign currency hedging contracts. So, derivative financial
instruments included in the balance sheets at 31 December 2011 are in the negative fair value
which is RM 9,820,000 in current liabilities and RM 18,566,000 in non-current liabilities.
Besides that, in year 2012, total carrying amount of the fuel hedging contract is RM 42,673,000
which is at a net current liabilities position. So, total derivative financial instruments included in
the balance sheets at 31 December 2012are in the fair value of RM 28,565,000 in current
liabilities and negative RM 29,716,000 in non-current liabilities respectively.
However, LFIB have adopted the same standard for year 2011 and 1012 as per year 2010,
which are FRS 7 and FRS 139. The financial assets are classified into the following specified
categories such as financial asset at fair value through profit or loss (FVTPL), held-tomaturity investments, available-for-sale (AFS) financial assets and loans and receivables.
The classification depends on the nature and purpose of the financial assets and is determined at
the time of initial recognition. The effective interest method is a method of calculating the
amortised cost of a financial asset and of allocating interest income over the relevant period.
Debt and equity instruments are classified as either financial liabilities or as equity in accordance
with the substance of the contractual arrangement. An equity instrument is any contract that
evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity
instruments issued by the Group and the Company are recognised at the proceeds received, net of
direct issue costs.
Besides that, for financial instrument of KYM Holding Berhad in terms of capital risk
management are increased from the year of 2010 to 2011. Under the requirements of Bursa
Malaysia Practice in the Note No. 17/2005, the Company is required to maintain a consolidated
shareholders equity (total equity attributable to owners of the Company) equal to or not less
than the 25% of the issued and paid-up share capital (excluding treasury shares) and such
shareholders equity is not less than RM40 million. The Company has complied with this
requirement. Interest rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market interest rates. The Groups exposure to
interest rate risk arises mainly from interest-bearing financial assets and liabilities. The Groups
policy is to obtain the most favourable interest rates available. Any surplus funds of the Group
will be placed with licensed financial institutions to generate interest income.