Annual Report 2006 - Venture Corporation Limited

notes to financial statements
December 31, 2006
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss,
is recognised directly in equity.
Financial liabilities and equity instruments
Classification as debt or equity
Financial liabilities and equity instruments issued by the group are classified according to the substance of the
contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting
all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
Financial liabilities
Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently
measured at amortised cost, using the effective interest rate method, with interest expense recognised on an
effective yield basis.
Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured
at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of
transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings
in accordance with the group’s accounting policy for borrowing costs (see below).
The effective interest method is a method of calculating the amortised cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the financial liability, or, where appropriate, a
shorter period.
Derivative financial instruments
The group’s activities expose it primarily to the financial risks of changes in foreign exchange rates.
The group uses derivative financial instruments (primarily foreign currency forward contracts) to hedge its risks
associated with foreign currency fluctuations relating to certain firm commitments and forecast transactions.
The use of financial derivatives is governed by the group’s policies approved by the board of directors, which
provide guidance on the use of financial derivatives consistent with the group’s risk management strategy. The
group does not use derivative financial instruments for speculative purposes.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each balance sheet 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.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives
when their risks and characteristics are not closely related to those of the host contracts and the host contracts
are not measured at fair value with changes in fair value recognised in profit or loss.
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