DEFINING DESIGN
QUALITY
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2.
Summary of significant accounting policies (cont’d)
Financial assets
A financial asset is recognised on the statement of financial position when, and only when, the Group becomes a
party to the contractual provisions of the instrument. The initial recognition of financial assets is at fair value normally
represented by the transaction price. The transaction price for financial asset not classified at fair value through
profit or loss includes the transaction costs that are directly attributable to the acquisition or issue of the financial
asset. Transaction costs incurred on the acquisition or issue of financial assets classified at fair value through profit
or loss are expensed immediately. The transactions are recorded at the trade date.
Irrespective of the legal form of the transactions performed, financial assets are derecognised when they pass the
“substance over form” based on the derecognition test prescribed by FRS 39 Financial Instruments: Recognition
and Measurement relating to the transfer of risks and rewards of ownership and the transfer of control. Financial
assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there
is currently a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net
basis, to realise the assets and settle the liabilities simultaneously.
The Group’s financial assets include loans and receivables, held-to-maturity financial assets and available-for-sale
financial assets. Subsequent measurement of the financial assets is as follows:
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market. Assets that are for sale immediately or in the near term are not classified in this category. These
assets are carried at amortised costs using the effective interest method (except that short-duration receivables
with no stated interest rate are normally measured at original invoice amount unless the effect of imputing interest
would be significant) minus any reduction (directly or through the use of an allowance account) for impairment or
uncollectibility. Impairment charges are provided only when there is objective evidence that an impairment loss has
been incurred as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’)
and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of
financial assets that can be reliably estimated. The methodology ensures that an impairment loss is not recognised
on the initial recognition of an asset. For impairment, the carrying amount of the asset is reduced through use of
an allowance account. The amount of the loss is recognised in profit or loss. An impairment loss is reversed if the
reversal can be related objectively to an event occurring after the impairment loss was recognised. Typically, trade
and other receivables and cash and cash equivalents are classified in this category.
Held-to-maturity financial assets
These are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has
the positive intention and ability to hold to maturity. Financial assets that upon initial recognition are designated as
at fair value through profit or loss or available-for-sale and those that meet the definition of loans and receivables
are not classified in this category. These assets are carried at amortised costs using the effective interest method
minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility.
Impairment charges are provided only when there is objective evidence that an impairment loss has been incurred.
For impairment, the carrying amount of the asset is reduced through use of an allowance account. The gains and
losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the
amortisation process. Impairment losses recognised in profit or loss are subsequently reversed if an increase in the
fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment
loss. Non-current investments in bonds and debt securities are usually classified in this category.
Available-for-sale financial assets
These are non-derivative financial assets that are designated as available-for-sale on initial recognition or are not
classified in any of the other categories. These assets are carried at fair value. Changes in fair value of available-for-
sale financial assets (other than those relating to foreign exchange translation differences on monetary investments)
are recognised in other comprehensive income and accumulated in a separate component of equity under the
heading revaluation reserves. Such reserves are reclassified to profit or loss when realised through disposal. When
there is objective evidence that the asset is impaired, the cumulative loss is reclassified from equity to profit or
loss as a reclassification adjustment. A significant or prolonged decline in the fair value of the investment below
its cost is considered to be objective evidence of impairment. If, in a subsequent period, the fair value of an equity
instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring
after the impairment loss, it is reversed against revaluation reserves and is not subsequently reversed through profit
or loss. However, for debt instruments classified as available-for-sale, impairment losses recognised in profit or loss
are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event
occurring after the recognition of the impairment loss. For non-equity instruments classified as available-for-sale,
the reversal of impairment is recognised in profit or loss. The financial assets are classified as non-current assets
unless management intends to dispose of the investments within 12 months of the end of the reporting period.
Usually, non-current investments in equity shares and debt securities are classified in this category but it does
not include subsidiaries, joint ventures, or associates. Unquoted investments are stated at cost less allowance for
impairment in value where there are no market prices, and management is unable to establish fair value by using
valuation techniques except that where management can establish fair value by using valuation techniques, the
relevant unquoted investments are stated at fair value. For unquoted equity instruments, impairment losses are not
reversed.
Notes to the Financial Statements
31 December 2014
