Telkom AR front.qxp

262
Telkom Annual Report 2009
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Summary of significant accounting policies (continued)
Financial instruments (continued)
Subsequent measurement
Subsequent to initial recognition, the Company classifies
financial assets as ’at fair value through profit or loss’, ’held-tomaturity
investments’, ’loans and receivables’, or ’available-forsale'.
Financial liabilities are classified ’at fair value through
profit or loss’ or ’other financial liabilities’. The measurement of
each is set out below and presented in a table in note 12.
The fair value of financial assets and liabilities that are actively
traded in financial markets is determined by reference to quoted
market prices at the close of business on the balance sheet date.
Where there is no active market, fair value is determined using
valuation techniques such as discounted cash flow analysis.
Financial assets at fair value through profit or loss
The Company classifies financial assets that are held for trading
in the category ’financial assets at fair value through profit or
loss’. Financial assets are classified as held for trading if they
are acquired for the purpose of selling in the future. Derivatives
not designated as hedges are also classified as held for trading.
On remeasurement to fair value the gains or losses on held for
trading financial assets are recognised in net finance charges
and fair value movements for the year.
Gains and losses arising from changes in the fair value of the
’financial assets at fair value through profit or loss’ category are
presented in the income statement within ’finance charges and
fair value movements’ in the period which they arise.
Held-to-maturity financial assets
The Company classifies non-derivative financial assets with fixed
or determinable payments and fixed maturity dates as held-tomaturity
when the Company has the positive intention and
ability to hold to maturity. These assets are subsequently
measured at amortised cost. Amortised cost is computed as the
amount initially recognised minus principal repayments, plus or
minus the cumulative amortisation using the effective interest
method. This calculation includes all fees paid or received
between parties to the contract. For investments carried at
amortised cost, gains and losses are recognised in net profit or
loss when the investments are sold or impaired.
Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Such assets are carried at amortised cost using the
effective interest method. Trade receivables are subsequently
measured at the original invoice amount where the effect of
discounting is not material.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative assets
that are designated as available-for-sale, or are not classified in
any of the three preceding categories. Equity instruments are all
treated as available-for-sale financial instruments. After initial
recognition, available-for-sale financial assets are measured at
fair value, with gains and losses being recognised as a
separate component of equity, net of taxation. Dividend income
is recognised in the income statement as part of other income
when the Company’s right to receive payment is established.
Changes in the fair value of monetary items denominated in a
foreign currency and classified as available-for-sale are
analysed between translation differences resulting from changes
in amortised cost of the security and other changes in carrying
amount of the item. The translation differences on monetary
items are recognised in profit or loss, while translation
differences on non-monetary securities are recognised in equity.
Changes in the fair value of monetary and non-monetary items
classified as available-for-sale are recognised directly in equity.
When an investment is derecognised or determined to be
impaired, the cumulative gain or loss previously recorded in
equity is recognised in profit or loss.
Financial liabilities at fair value through profit or loss
Financial liabilities are classified as ‘at fair value through profit
or loss’ (’FVTPL’) where the financial liability is held for trading.
A financial liability is classified as held for trading:
• if it is acquired for the purpose of settling in the near term; or
• if it is a derivative that is not designated and effective as a
hedging instrument.
Financial liabilities at a FVTPL are stated at fair value, with any
resultant gains or losses recognised in profit or loss. The net gain
or loss recognised in profit or loss incorporates any interest paid
on the financial liability.
Other financial liabilities
Other financial liabilities are subsequently measured at
amortised cost using the effective interest rate method, with
interest expense recognised in finance charges and fair value
movements, on an effective interest rate basis.
The effective interest rate is the rate that accurately discounts
estimated future cash payments through the expected life of the
financial liability or, where appropriate, a shorter period.