3. PPECB Annual Report 2009-2010

2.4 Financial InstrumentsFinancial instruments carried on the balance sheet includeinvestments, cash and bank balances, receivables, tradecreditors and borrowings. The particular recognition methodsadopted are disclosed in the individual policy statementsassociated with each item. The directors are of the opinionthat the carrying value of financial instruments approximatesfair value.2.5 Financial AssetsThe Board classifies its financial assets as held to maturity.Management determines the classification of financial assetsat initial recognition.This applies to investments where there are fixed ordeterminable payments and fixed maturity dates and theBoard has the positive intent and ability to keep theinvestments until maturity. These investments are measuredand recognised at amortised costs with interest-incomerecognised in the statement of financial performance.Assets in this category are classified as current assets if theyare expected to be realised within 12 months of the balancesheet date.The Board assesses at each balance sheet date whether thereis objective evidence that a financial asset or a group offinancial assets is impaired. If any such evidence exists foravailable-for-sale financial assets, the cumulative loss – measuredas the difference between the acquisition cost and the currentfair value, less any impairment loss on that financial assetpreviously recognised in profit or loss – is removed from equityand recognised in the statement of financial performance.2.6 Trade and Other ReceivablesTrade receivables are recognised initially at fair value andsubsequently measured at amortised cost using the effectiveinterest method, less provision for impairment. A provisionfor impairment of trade receivables is established when thereis objective evidence that the Board will not be able to collectall amounts due according to the original terms of receivables.Significant financial difficulties of the debtor, probability thatthe debtor will enter bankruptcy or financial reorganisation,and default or delinquency in payments are consideredindicators that the trade receivable is impaired. The amountof the provision is the difference between the asset’s carryingamount and the present value of estimated future cashflows, discounted at the original effective interest rate.The carrying amount of the asset is reduced through the useof an allowance account and the amount of the loss isrecognised in the statement of financial performance. Whena trade receivable is uncollectible, it is written off againstthe allowance account for trade receivables. Subsequentrecoveries of the amounts previously written off are creditedin the statement of financial performance.2.7 Cash and Cash EquivalentsCash and cash equivalents includes cash on hand and depositsheld at call with banks and bank overdrafts. Bank overdraftsare shown within borrowings in current liabilities on thebalance sheet.2.8 Trade PayablesTrade payables are recognised initially at fair value andsubsequently measured at amortised cost using the effectiveinterest method.2.9 ProvisionsA provision is recognised in the balance sheet when theBoard has a present legal or constructive obligation as aresult of a past event, and it is probable that an outflow ofeconomic benefits will be required to settle the obligation.If the effect is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax ratethat reflects current market assessments of the time valueof money and, where appropriate, the risks specific to theliability. Provisions are reviewed at each balance sheet dateand adjusted to reflect the current best estimate.2.10 Reservesi) Self-insurance reserve:A self-insurance fund was established to manage theuninsured risks of the Board.ii) Asset replacement fund:This reserve was established to provide for the replacementof computer and technical equipment.iii) Revaluation reserve:This reserve was established due to surpluses that weregenerated on the revaluation of land and buildings.2.11 Revenue RecognitionRevenue comprises the fair value of the consideration receivedor receivable for the sale of services in the ordinary coursePPECB | annual report | 2009 - 2010 75