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Notes to the Financial Statements (cont’d)
For the financial year ended 31 December 2011
2. Summary of significant accounting policies (cont’d)
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2.21 Financial liabilities (cont’d)
(b) Other financial liabilities
The Group’s and the Company’s other financial liabilities include trade payables, other payables and loans and
borrowings.
Trade and other payables are recognised initially at fair value plus directly attributable transaction costs and
subsequently measured at amortised cost using the effective interest method.
Loans and borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently
measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless
the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting
date.
For other financial liabilities, gains and losses are recognised in profit or loss when the liabilities are derecognised,
and through the amortisation process.
A financial liability is derecognised when the obligation under the liability is extinguished. When an existing financial
liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and
the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.
2.22 Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder
for a loss it incurs because a specified debtor fails to make payment when due.
Financial guarantee contracts are recognised initially as a liability at fair value, net of transaction costs. Subsequent
to initial recognition, financial guarantee contracts are recognised as income in profit or loss over the period of the
guarantee. If the debtor fails to make payment relating to financial guarantee contract when it is due and the Group,
as the issuer, is required to reimburse the holder for the associated loss, the liability is measured at the higher of the
best estimate of the expenditure required to settle the present obligation at the reporting date and the amount initially
recognised less cumulative amortisation.
2.23 Hedge accounting
The Group uses derivatives to manage its exposure to foreign market risk, interest rate risk and liquidity risk, including
forward currency contracts, commodity forward contracts and interest rate swaps. The Group applies hedge accounting
for certain hedging relationships which qualify for hedge accounting.
For the purpose of hedge accounting, hedging relationship are classified as:
• Fair value hedges, when hedging the exposure to changes in the fair value of a recognised asset or liability or an
unrecognised firm commitment (except for foreign currency risk); or
• Cash flow hedges, when hedging exposure to variability in cash flows that is either attributable to a particular risk
associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in
an unrecognised firm commitment; or
• Hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which
the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the
hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature
of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure
to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to
be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to
determine that they actually have been highly effective throughout the financial reporting periods for which they were
designated.
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