Full annual report - African Bank - Investoreports

Notes to the group annual financial statements continued
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■ Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are intended to be held for an undefined
period of time, which may be sold in response to the need for liquidity or changes in interest rates, exchange rates
or equity prices. Interest income on these assets is recognised as part of interest income, based on the asset’s
original effective interest rate. Gains and losses arising from changes in fair value are recognised in other
comprehensive income, until the asset is disposed of or it is determined to be impaired, at which time the
cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. Interest
income is excluded from the fair value gains and losses which are recognised in other comprehensive income.
■ Financial liabilities at amortised cost
All financial liabilities, other than those at fair value through profit or loss, are measured at amortised cost.
4.10.3.1 Effective interest rate method
The effective interest rate method is a method of calculating the amortised cost of a financial asset
or liability and of allocating interest income over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts/payments (including all fees receivable
that form an integral part of the effective interest rate) through the expected life of the financial
asset/liability or, where appropriate, a shorter period.
4.10.3.2 Fair value
Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction.
The best evidence of the fair value of a financial instrument on initial recognition is the transaction
price, i.e. the fair value of the consideration paid or received. Transaction costs that are directly
attributable are included in the initial fair value of financial assets and financial liabilities, other than
those at fair value through profit or loss.
Subsequent to initial recognition, the fair values of financial assets and liabilities are based on quoted
market prices or dealer price quotations for financial instruments traded in active markets. If the
market for a financial asset is not active or the instrument is an unlisted instrument, the fair value is
determined by using applicable valuation techniques. These include the use of recent arm’s length
transactions, discounted cash flow analyses, pricing models and valuation techniques commonly
used by market participants.
Where discounted cash flow analyses are used, estimated future cash flows are based on
management’s best estimates and the discount rate is a market related rate at the reporting date for
a financial asset with similar terms and conditions.
4.10.4 Derecognition of financial instruments
The group derecognises a financial asset (or group of financial assets) or a part of a financial asset (or part of
a group of financial assets) when:
– the contractual rights to the cash flows arising from the financial asset have expired; or
– the group transfers the financial asset, including substantially all the risks and rewards of ownership of the
asset; or
– it transfers the contractual rights to receive the cash flows from the financial asset; or
– it retains the contractual rights to receive the cash flows of the financial asset, but assumes a corresponding
contractual obligation to pay the cash flows to one or more recipients, and consequently transfers
substantially all the risks and benefits associated with the asset; or
– no future economic benefits are expected from their use.