annual report 2010 - 2011 - Intsika Yethu Municipality

Cash includes cash on hand (including petty cash) and cash with banks (including call deposits). Cash
equivalents are short-term highly liquid investments, readily convertible into known amounts of
cash, that are held with registered banking institutions with maturities of three months or less and
are subject to an insignificant risk of change in value. For the purposes of the cash flow statement,
cash and cash equivalents comprise cash on hand, deposits held on call with banks, net of bank
overdrafts.
The municipality categorises cash and cash equivalents as financial asset: loans and receivables.
A financial liability is a contractual obligation to deliver cash or another financial asset to another
entity. The municipality has the following types of financial liabilities:
- Long-term liabilities
- Certain other creditors
- Short-term loans
- Current portion of long-term liabilities
There are two main categories of financial liabilities, the classification determining how they are
measured. Financial liabilities may be measured as:
- Fair value through profit or loss; or
- Other financial liabilities
Financial liabilities that are measured at fair value through profit or loss are financial liabilities that
are essentially held for trading (i.e. purchased with the intention to sell or repurchase in the short
term; derivatives other than hedging instruments or are part of a portfolio of financial instruments
where there is recent actual evidence of short-term profiteering or are derivatives). Financial liabilities
that are measured at fair value through profit or loss are stated at fair value, with any resulting
gain or loss recognised in the Statement of Financial Performance.
Any other financial liabilities are classified as “other financial liabilities” and are initially measured at
amortised cost using the effective interest method, with interest expense recognised on an effective
yield basis.
In accordance with IAS 39.09 the financial liabilities of the municipality are all classified as “other
financial liabilities”.
Classification depends on the purpose for which the financial instruments were obtained / incurred
and takes place at initial recognition. Classification is re-assessed on an annual basis, except for derivatives
and financial assets designated as at fair value through surplus or deficit, which shall not be
classified out of the fair value through surplus or deficit category.
5.2 INITIAL RECOGNITION
Financial instruments are initially recognised at fair value.
5.3 SUBSEQUENT MEASUREMENT
Financial Assets are categorised according to their nature as either financial assets at fair value
through profit or loss, held-to maturity, loans and receivables, or available for sale. Financial liabilities
are categorised as either at fair value through profit or loss or financial liabilities carried at
amortised cost (“other”). The subsequent measurement of financial assets and liabilities depends
on this categorisation and, in the absence of an approved GRAP Standard on Financial Instruments,
is in accordance with IAS 39.
INTSIKA YETHU LOCAL MUNICIPALITY / 55