Translation of a foreign operation

Chapter 20 – Financial Instruments Page 280 Asset Sub-category Description Measurement after initial recognition Recording of changes Designated Any financial asset designated on initial recognition and meeting the specified recognition criteria Financial assets at fair value through, profit or loss Held for trading Financial assets held for the purpose of selling in the short term. This will include most derivatives Fair value Profit or loss Available-for- sale financial assets None Non-derivative financial assets designated by an entity as available-for- sale, or not falling under the other three classifications Other comprehensive income, except for impairment losses Loans and receivables None Non-derivative financial assets with fixed or determinable payments, other than those quoted in a market and those designated as held for trading or available-for- sale Held-to-maturity investments None Non-derivative financial assets with fixed or determinable payments and fixed maturity dates, where the entity has the intention and ability to hold them long term and they are not classified as any of the above Amortised cost Profit or loss Chapter 20 – Financial Instruments Page 281

10.2 Financial liabilities

Following initial recognition, financial liabilities are generally measured at “amortised cost using the effective interest method”. The principles for amortised cost and the use of the effective interest method are discussed above in relation to financial assets. [IAS 39.47] However, an entity is permitted to designate financial liabilities as at fair value through profit or loss in specific circumstances, as discussed above. [IAS 39.47] Where a derivative liability is linked to, or to be settled by, the transfer of an unquoted equity instrument whose fair value cannot be measured reliably, it should be measured at cost. [IAS 39.47] If a financial asset is transferred but cannot be derecognised because the entity continues to have some involvement in it, any financial liability associated with it should be measured under special rules as explained below. [IAS 39.47]

10.3 Determining fair value

As defined above, fair value is the value that an asset or liability can be exchanged for in an arm’s length purchase or sale. There is a presumption in the definition of fair value that an entity will continue into the foreseeable future, i.e. it is a going concern as set out in the IASB Framework and IAS 1 Presentation of financial statements. Where a quoted market price exists for a financial asset or liability, this will be its fair value, representing the price which an entity could obtain for the asset, or at which it could settle the liability, at the end of the reporting period. The appropriate market price is usually the current bid price for an asset held and financial liability to be issued, and the asking price for a liability held and an asset to be acquired. The bid price for an asset is the price which a third party is willing to pay to acquire it, while the asking price for an asset is the lowest price at which a third party will sell it. Where bid and asking prices are not available, the price to be used is that at which the latest transaction occurred, assuming that there has not been a significant change in the fair value of the financial instrument since that date. If there is no active market for a financial instrument, then its fair value should be estimated by using valuation techniques. In using such techniques, a more reliable estimate should be achievable by using as many market inputs as possible and hence as little reliance as possible is placed on entity specific inputs. Valuation techniques should also take into account any recent transactions that have taken place between willing parties, and the fair value of similar financial instruments.

10.4 IFRIC 2 Members’ shares in co-operative entities and similar instruments

IFRIC 2 was published in November 2004 to provide clarification on the recognition of members’ shares in co-operative entities. Members’ shares in co-operative entities have many of the characteristics of equity, but such a share may also provide the holder with the right to request redemption for cash or another financial instrument. It is not uncommon for such rights to have a number of restrictions attached to them. The overriding guidance in the Interpretation is that members’ shares in co-operative entities that carry the right to request repayment should be reported as liabilities unless the entity has