Annual Report Accounts 2012 - Tribal

70Tribal Group plc Annual Report and Accounts 2012 | Notes to the financial statementsNotes to the financial statements continued1. Accounting policies (continued)Financial assets/liabilities at FVTPLFinancial assets/liabilities are classified as at FVTPL where the financial asset/liability is either held for trading or it isdesignated as at FVTPL.A financial asset/liability is classified as held for trading if:• it has been acquired/incurred principally for the purpose of selling/disposal in the near future; or• it is part of an identified portfolio of financial instruments that the Group manages together and has a recent actual patternof short-term profit-taking; or• it is a derivative that is not designated and effective as a hedging instrument.A financial asset/liability other than a financial asset/liability held for trading may be designated as at FVTPL upon initialrecognition if:• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwisearise; or• the financial asset/liability forms part of a group of financial assets or liabilities, or both, which is managed and itsperformance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investmentstrategy, and the information about the Group is provided internally on that basis; or• it forms a part of a contract containing one or more embedded derivatives, and IAS 39 ‘Financial Instruments: Recognitionand Measurement’ permits the entire combined contract (asset or liability) to be designated at FVTPL.Financial assets/liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The netgain or loss recognised in profit or loss incorporates any dividend or interest earned/paid on the financial asset/liability. Fairvalue is determined in the manner described in note 37.Derecognition of financial liabilitiesThe Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or theyexpire.Derivative financial instrumentsThe Group’s activities expose it to the financial risks of changes in interest rates and exchange rates. The Group uses interestrate and foreign exchange instruments to manage this exposure where appropriate.The use of financial derivatives is governed by the Group’s policies approved by the Board, which provides written principleson the use of financial derivatives. Further details of derivative financial instruments are disclosed in note 37 to the financialstatements.Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequentlyremeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediatelyunless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profitor loss depends on the nature of the hedge relationship.A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is morethan 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as currentassets or current liabilities.Hedge accountingThe Group designates certain hedging instruments as cash flow hedges. At the inception of the hedge relationship, the entitydocuments the relationship between the hedging instrument and the hedged item, along with its risk management objectivesand its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoingbasis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective inoffsetting changes in the cash flows of the hedging item.Cash flow hedgeThe effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges aredeferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and isincluded in the ‘other gains and losses’ line of the income statement.