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Accounting policy
Financial instruments
The Group’s principal financial instruments comprise receivable, payables, borrowings, bonds, cash,
funds on deposit and derivatives.
Non-derivative financial assets
Receivables are financial assets with fixed or determinable payments that are not quoted in an active
market. Such assets are recognised initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition they are measured at amortised cost using the effective
interest method. Receivables comprise cash and cash equivalents and trade and other receivables.
Cash and cash equivalents in the balance sheet includes cash on hand, funds on deposit with
financial institutions, other short term, highly liquid investments with original maturities of 180 days or
less that are readily convertible to known amounts of cash and which are subject to an insignificant
risk of changes in value. Investments in shares are held at cost and reviewed for impairment.
Non-derivative financial liabilities
Financial liabilities are recognised initially on
the trade date and derecognised when contractual obligations are discharged, cancelled or
expired. Such liabilities are recognised at fair value less any directly attributable transaction costs,
subsequently measured at amortised cost using the effective interest method. Other financial
liabilities comprise loan facilities, bonds, bank overdrafts and trade and other payables.
Derivative financial instruments
The Group can hold derivative financial instruments to hedge its foreign currency and interest rate
risk exposures. On initial designation of the derivative as the hedging instrument, the Group formally
documents the relationship between the hedging instrument and the hedged item, including the
risk management objectives and strategy in undertaking the hedge transaction and the hedged risk,
together with the methods that will be used to assess the effectiveness of
the hedging relationship.
The Group makes an assessment, both at the inception of the hedge relationship as well as on an
ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting
the changes in the fair value or cash flows of the respective hedged items attributable to hedged
risk and whether the actual results of each hedge are within a range of 80 - 125 percent. For a cash
flow hedge of a forecast transaction, the transaction should be highly probable to occur and should
present an exposure to variations in cash flows that ultimately could affect reported profit or loss.
Derivatives are recognised initially at fair value, any attributable transaction costs are recognised in
profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and
changes are recognised in other comprehensive income and presented in equity, unless ineffective in
which case the ineffective portion is recognised immediately in profit or loss.
Amounts accumulated in equity are transferred to the consolidated income statement in the periods
when the hedged item affects profit or loss (for instance when the delivery of the goods hedged
takes place).
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(d) Fair value measurements (continued)
NOTE 11
FINANCIAL RISK MANAGEMENT (CONTINUED)