Annual REPORT

ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
2 ACCOUNTING POLICIES (Continued)
Financial instruments (Continued)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Financial liabilities and equity instruments issued by the group
a) Classification and measurement
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance
of the contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of
its liabilities. Equity instruments issued by the group are recorded at the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.
i) Financial liabilities at fair value through profit or loss
Financial liabilities are classified as at fair value through profit or loss when the financial liability is either held for
trading or it is designated as at fair value through profit or loss.
Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on
remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest
paid on the financial liability.
ii) Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with
interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial
liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
iii) Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the
holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the
terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on
behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee was
given. The fair value of a financial guarantee at the time of signature is zero because all guarantees are agreed on
arm’s length terms and the value of the premium agreed corresponds to the value of the guarantee obligation. No
receivable for the future premiums is recognised. Subsequent to initial recognition, the group’s liabilities under
such guarantees are measured at the higher of the initial amount, less amortisation of fees recognised in accordance
with IAS 18, and the best estimate of the amount required to settle the guarantee. These estimates are
determined based on experience of similar transactions and history of past losses, supplemented by the judgement
of management. The fee income earned is recognised on a straight line basis over the life of the guarantee.
56