Annual Report 2007 - Antofagasta plc

2 Principal Accounting Policies continuedr) LeasesRental costs under operating leases are charged to the income statement account in equal annual amounts overthe term of the lease.Assets under finance leases are recognised as assets of the Group at inception of the lease at the lower of fairvalue or the present value of the minimum lease payments derived by discounting at the interest rate implicitin the lease. The interest element is charged within financing costs so as to produce a constant periodic rateof interest on the remaining balance of the liability.s) Other financial instrumentsFinancial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomesa party to the contractual provisions of the instrument.(i) Investments – Investments which are not subsidiaries, associates or joint ventures are initially measuredat cost, including transaction costs.Investments are classified as either held for trading or available for sale, and are normally measured at subsequentreporting dates at fair value. Fair value is determined in the manner described in Note 24(b). Investments in equityinstruments that do not have a quoted market price in an active market and whose fair value cannot be reliablymeasured are measured at cost.Securities are classified as “held-for-trading” when they are acquired principally for the purpose of sale in theshort-term, and gains and losses arising from changes in fair value are included in the income statement forthe period. Other investments are classified as “available-for-sale”, and gains and losses arising from changes infair value are recognised directly in equity, within the “Fair value reserve”, until the security is disposed of or isdetermined to be impaired, at which time the cumulative gain or loss previously recognised in equity is includedin the income statement for the period.Dividends on available for sale equity investments are recognised in the income statement when the right toreceive payment is established.(ii) Trade and other receivables – Trade and other receivables do not generally carry any interest and arenormally stated at their nominal value less any impairment. Impairment losses on trade receivables arerecognised within an allowance account unless the Group considers that no recovery of the amount is possible,in which case the carrying value of the asset is reduced directly.(iii) Trade and other payables – Trade and other payables are generally not interest bearing and are normallystated at their nominal value.(iv) Borrowings (loans and preference shares) – Interest-bearing loans and bank overdrafts are initially recordedat the proceeds received, net of direct issue costs. They are subsequently measured at amortised cost usingthe effective interest method, with interest expense recognised on an effective yield basis. The effectiveinterest method is a method of calculating the amortised cost of a financial liability and of allocating interestexpense over the relevant period. The effective interest rate is the rate that exactly discounts estimated futurecash payments through the expected life of the financial liability, or, where appropriate, a shorter period.Finance charges, including premiums payable on settlement or redemption and direct issue costs, areaccounted for on an accruals basis using the effective interest rate method. Amounts are either recorded asfinancing costs in the income statement or capitalised in accordance with the accounting policy set out in Note2(h). Finance charges are added to the carrying amount of the instrument to the extent that they are not settledin the period in which they arise.Antofagasta plc Annual Report and Financial Statements 2007 89FINANCIAL STATEMENTS FINANCIAL STATEMENTS