2012 Annual Report - ZTE

ZTE CORPORATIONNotes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 20122.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Financial liabilities (continued)Subsequent measurementThe subsequent measurement of financial liabilities depends on their classification as follows:Financial liabilities at fair value through profit or lossFinancial liabilities at fair value through profit or loss include financial liabilities held for trading and financialliabilities designated upon initial recognition as at fair value through profit or loss.Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in thenear term. This category includes derivative financial instruments entered into by the Group that are notdesignated as hedging instruments in hedge relationships as defined by HKAS 39. Separated embeddedderivatives are also classified as held for trading unless they are designated as effective hedging instruments.Gains or losses on liabilities held for trading are recognised in profit or loss. The net fair value gain or lossrecognised in profit or loss does not include any interest charged on these financial liabilities.Financial liabilities designated upon initial recognition at fair value through profit or loss are designated atthe date of initial recognition and only if the criteria in HKAS 39 are satisfied.Loans and borrowingsAfter initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost,using the effective interest rate method unless the effect of discounting would be immaterial, in which casethey are stated at cost. Gains and losses are recognised in profit or loss when the liabilities are derecognisedas well as through the effective interest rate amortisation process.Amortised cost is calculated by taking into account any discount or premium on acquisition and fees orcosts that are an integral part of the effective interest rate. The effective interest rate amortisation is includedin finance costs in profit or loss.Financial guarantee contractsFinancial guarantee contracts issued by the Group are those contracts that require a payment to be madeto reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when duein accordance with the terms of a debt instrument. A financial guarantee contract is recognised initially asa liability at its fair value, adjusted for transaction costs that are directly attributable to the issuance of theguarantee. Subsequent to initial recognition, the Group measures the financial guarantee contract at thehigher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation atthe end of the reporting period; and (ii) the amount initially recognised less, when appropriate, cumulativeamortisation.344