Annual Report 2011 - QuamIR

Notes to the Consolidated Financial StatementsFor the year ended 31 March 20113. Significant Accounting Policies (continued)Financial instruments (continued)Financial liabilities and equity instruments (continued)Convertible bondsConvertible bonds issued by the Company are classified separately as financial liabilities and equityin accordance with the substance of the contractual arrangements and the definitions of a financialliability and an equity instrument. Conversion option that will be settled by the exchange of a fixedamount of cash or another financial asset for a fixed number of the Company’s own equity instrumentsis an equity instrument.At the date of issue, the fair value of the liability component is estimated using the prevailing marketinterest rate for similar non-convertible instruments. This amount is recorded as a liability on anamortized cost basis using the effective interest method until extinguished upon conversion or at theinstrument’s maturity date.The conversion option classified as equity is determined by deducting the amount of the liabilitycomponent from the fair value of the compound instrument as a whole. This is recognized and includedin equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversionoption classified as equity will remain in equity until the conversion option is exercised, in which case,the balance recognized in equity will be transferred to share premium. Where the conversion optionremains unexercised at the maturity date of the convertible bonds, the balance recognized in equity willbe transferred to accumulated losses. No gain or loss is recognized in profit or loss upon conversion orexpiration of the conversion option.Transaction costs that relate to the issue of the convertible bonds are allocated to the liability andequity components in proportion to the allocation of the gross proceeds. Transaction costs relatingto the equity component are recognized directly in equity. Transaction costs relating to the liabilitycomponent are included in the carrying amount of the liability component and are amortized over thelives of the convertible bonds using the effective interest method.DerecognitionThe Group derecognizes a financial asset only when the contractual rights to the cash flows from theasset expire, or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another entity. If the Group neither transfers nor retains substantially all therisks and rewards of ownership and continues to control the transferred asset, the Group recognizesits retained interest in the asset and an associated liability for amounts it may have to pay. If theGroup retains substantially all the risks and rewards of ownership of a transferred financial asset, theGroup continues to recognize the financial asset and also recognizes a collateralized borrowing for theproceeds received.On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amountand the sum of the consideration received and receivable and the cumulative gain or loss that had beenrecognized in other comprehensive income and accumulated in equity is recognized in profit or loss.Annual Report 201169