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Financial Reports &
Governance HENGYUAN REFINING COMPANY BERHAD l ANNUAL REPORT 2023 111
Other Information

NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023

2 SUMMARY OF MATERIAL ACCOUNTING POLICY INFORMATION (continued)
2.9 DERIVATIVES AND HEDGING ACTIVITIES (continued)
(c) Hedge effectiveness (continued)

For interest rate swap hedges, the Company may enter into interest rate swaps that have similar critical terms as
the hedged item, such as reference rate, reset dates, payment dates, maturities and notional amount. The Company
does not hedge 100% of its loans, therefore the hedged item is identified as a proportion of the outstanding
loans up to the notional amount of the swaps. There are no interest rate swap hedges entered into during the
financial year ended 31 December 2023 and 31 December 2022.
Hedge ineffectiveness for interest rate swaps, where applicable, is assessed using the same principles as for refining
margin swap hedges. It may occur due to change in credit risk of the Company or the derivative counterparty,
timing of interest rate swaps interest payment or reduction in the notional amount of the interest rate swaps.
(d) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. These derivatives are classified as held for
trading and accounted for at fair value through profit or loss in “other operating gains/losses”.
(e) Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when
their risks and characteristics are not closely related to those of the host contracts and the host contracts are not
carried at fair value.
Crude purchases resulting in variability in the payable associated with the commodity price gives rise to an embedded
derivative which is not closely related to the host financial instrument. The Company has an accounting policy
choice for subsequent changes in the fair value of the embedded derivative. Cost of inventory could be adjusted to
reflect subsequent changes in the fair value of the embedded derivative on the basis that such changes are part of
the purchase and other costs incurred in bringing the inventory to its present location and condition. Alternatively,
these changes could be charged to profit or loss in accordance on the basis that the cost of inventory is determined
at the time of delivery and the bifurcated embedded derivative should be accounted for separately as if it was a
freestanding instrument.
The Company opted to reflect subsequent changes in the fair value of the embedded derivative as part of the cost
of inventory. The chosen policy will be consistently applied.
2.10 TRADE AND OTHER RECEIVABLES
Trade receivables are amounts due from customers for oil products sold in the ordinary course of business.
Other receivables generally arise from transactions outside the usual operating activities of the Company. If collection
is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant
financing components, where they are recognised at fair value plus transaction costs. Other receivables are recognised
initially at fair value plus transaction costs. Transaction costs include transfer taxes and duties.
The Company holds trade and other receivables with the objective of collecting the contractual cash flows and therefore
measures them subsequently at amortised cost using the effective interest rate method, less allowance for impairment.
Details about the Company’s impairment policies and the calculation of ECL are provided in the accounting policy 2.8(d).