Annual Report 2012
Annual Report 2012
Annual Report 2012
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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)<br />
for the year ended 31 December <strong>2012</strong><br />
3 SIGNIFICANT ACCOUNTING POLICIES (Continued)<br />
(11) Financial Instruments (Continued)<br />
(a) Classification, recognition and measurement of financial instruments (Continued)<br />
– Available-for-sale financial assets<br />
Available-for-sale financial assets include non-derivative financial assets that are designated as available for sales and other financial<br />
assets which do not fall into any of the above categories.<br />
Available-for-sale financial assets whose fair value cannot be measured reliably are measured at cost subsequent to initial recognition.<br />
Other than the above equity instrument investments whose fair values cannot be measured reliably, other available-for-sale financial assets<br />
are initially stated at fair values. The gains or losses arising from changes in the fair value are directly recognised in equity, except for<br />
the impairment losses and exchange differences from monetary financial assets denominated in foreign currencies, which are recognised<br />
in profit or loss. The cumulative gains and losses previously recognised in equity are transferred to profit or loss when the available-forsale<br />
financial assets are derecognised. Dividend income from these equity instruments is recognised in profit or loss when the investee<br />
declares the dividends. Interest on available-for-sale financial assets calculated using the effective interest method is recognised in profit<br />
or loss (see Note 3(17)(c)).<br />
– Other financial liabilities<br />
Financial liabilities other than the financial liabilities at fair value through profit or loss are classified as other financial liabilities.<br />
Other financial liabilities include the liabilities arising from financial guarantee contracts. Financial guarantees are contracts that require<br />
the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the holder) for a loss the holder<br />
incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Where the Group<br />
issues a financial guarantee, subsequent to initial recognition, the guarantee is measured at the higher of the amount initially recognised<br />
less accumulated amortisation and the amount of a provision determined in accordance with the principles of contingencies (see Note<br />
3(16)).<br />
Except for the other financial liabilities described above, subsequent to initial recognition, other financial liabilities are measured at<br />
amortised cost using the effective interest method.<br />
(b) Disclosure of financial assets and financial liabilities<br />
In the balance sheet, financial assets and liabilities are not offset unless all the following conditions are met:<br />
– the Group has a legally enforceable right to set off financial assets against financial liabilities; and<br />
– the Group intend to settle the financial assets and liabilities on a net basis, or to realise the assets and settle the liabilities<br />
simultaneously.<br />
(c) Determination of fair value<br />
If there is an active market for a financial asset or financial liability, the quoted price in the active market is used to establish the fair value<br />
of the financial asset or financial liability.<br />
If no active market exists for a financial instrument, a valuation technique is used to establish the fair value. Valuation techniques include<br />
using arm’s length market transactions between knowledge, willing parties; reference to the current fair value of other instrument that is<br />
substantially the same; discounted cash flows and option pricing model. The Group calibrates the valuation technique and tests it for validity<br />
periodically.<br />
87<br />
CHINA PETROLEUM & CHEMICAL CORPORATION <strong>Annual</strong> <strong>Report</strong> <strong>2012</strong><br />
Financial Statements (PRC)