2012 Annual Report (2 April 2013) - Grange Resources

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2012 ANNUAL REPORT
Notes to the Financial Statements (cont.)
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (cont.)
(u)
Investments and other financial assets
Classification
The Group classifies its financial assets in the following categories:
financial assets at fair value through profit and loss, loans and
receivables, held-to-maturity financial assets and available-for-sale
financial assets. The classification depends on the purpose for
which the investments were acquired. Management determines
the classification of its investments at initial recognition, and in
the case of assets classified as held-to-maturity, re-evaluates this
designation at each reporting date.
Financial assets at fair value through profit or loss
Financial assets classified as held for trading purposes are
included 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 near term.
Derivatives are also classified as held for trading unless they are
designated as effective hedging instruments. Gains or losses on
investments held for trading are recognised in profit or loss.
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. Gains and losses are recognised in the
profit and loss when the loans and receivables are derecognised
or impaired, as well as through the amortisation process.
Held-to-maturity investments
Bills of exchange and debentures are recorded at amortised cost
using the effective interest method less impairment, with revenue
recognised on an effective yield basis.
The effective interest method is a method of calculating the
amortised cost of a financial asset and of allocating interest
income over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts through
the expected life of the financial asset, or, where appropriate, a
shorter period.
Available-for-sale financial assets
Financial assets that are available-for-sale are stated at fair value
less impairment. Gains and losses arising from changes in fair
value are recognised directly in the available-for-sale revaluation
reserve, until the investment is disposed of or is determined to
be impaired, at which time the cumulative gain or loss previously
recognised in the available-for-sale revaluation reserve is included
in profit or loss for the period.
(v) Derivative financial instruments
The Group enters into a variety of derivative financial instruments
to manage its exposure to foreign exchange rate risk.
Derivatives are initially recognised at fair value on the date
a derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date. The resulting
gain or loss is recognised in profit or loss immediately unless the
derivative is designated and effective as a hedging instrument, in
which event, the timing of the recognition in profit or loss depends
on the nature of the hedge relationship. The company designates
certain derivatives as either hedges of the fair value of recognised
assets or liabilities or firm commitments (fair value hedges) or
hedges of highly probable forecast transactions (cash flow
hedges), or hedges of net investments in foreign operations.
Fair value hedge
Changes in the fair value of derivatives that are designated
and qualify as fair value hedges are recorded in profit or loss
immediately, together with any changes in the fair value of the
hedged asset or liability that is attributable to the hedged risk.
Hedge accounting is discontinued when the hedge instrument
expires or is sold, terminated, exercised, or no longer qualifies for
hedge accounting. The adjustment to the carrying amount of the
hedged item arising from the hedged risk is amortised to profit or
loss from that date.
Cash flow hedge
The effective portion of changes in the fair value of derivatives
that are designated and qualify as cash flow hedges are deferred
in equity. The gain or loss relating to the ineffective portion is
recognised immediately in profit or loss.
Amounts deferred in equity are recycled in profit or loss in the
periods when the hedged item is recognised in profit or loss.
However, when the forecast transaction that is hedged results in
the recognition of a non-financial asset or a non-financial liability,
the gains and losses previously deferred in equity are transferred
from equity and included in the initial measurement of the cost of
the asset or liability.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer qualifies
for hedge accounting. At that time, any cumulative gain or loss
deferred in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in profit
or loss. When a forecast transaction is no longer expected to
occur, the cumulative gain or loss that was deferred in equity is
recognised immediately in profit or loss.