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NOTE 12 (CONTINUED)
FINANCIAL RISK MANAGEMENT
The Group’s policy is to invest its available
cash reserves with due regard to the timing
and magnitude of operational cash flow
requirements. The Group manages its cash
flow interest rate risk by entering into and
designating interest rate related authorised
hedging instruments as hedges. As at the
reporting date, cash reserves are being held
as cash and short term investments.
The gain or loss from re-measuring the
hedging instruments at fair value is recognised
in other comprehensive income and deferred
in equity in the hedging reserve, to the
extent that the hedge is effective. It is
reclassified into the income statement when
the hedged interest expense is recognised.
In the year ended 30 June 2016 there was
no reclassification into profit or loss (2015:
nil). Hedge effectiveness was assessed at
the inception of the bonds and was found to
be effective. Hedge effectiveness was also
assessed prospectively and retrospectively
using the cumulative dollar offset method as
at 30 June 2016 as a part of the bi-annual
testing. There was no hedge ineffectiveness
in the year ended to 30 June 2016 (2015: nil).
See note 21(t).
Instruments used by the Group
Derivatives are only used for economic
hedging purposes and not as trading or
speculative instruments. The Group has
the following derivative financial instruments:
Consolidated
2016
$’000
2015
$’000
Current assets
Forward foreign exchange contracts - cash flow hedges
38
-
Total current derivative financial instrument assets
38
-
Current liabilities
Interest rate swap contracts - cash flow hedges
-
(1,262)
Total current derivative financial instrument liabilities
-
(1,262)
(iii) Classification of derivatives
Derivatives are classified as hedging instruments and accounted for at fair value in other
comprehensive income and deferred in equity in the hedging reserve. It is reclassified into
the income statement when the hedged interest expense is recognised.
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