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4.4 Financial instruments
4.4.1. Financial assets
Classification -
The financial assets held by the Company are classified in the following categories:
a)
Loans and receivables: financial assets arising from the sale of goods or the rendering of
services in the ordinary course of the Company's business, or financial assets which, not
having commercial substance, are not equity instruments or derivatives, have fixed or
determinable payments and are not traded in an activemarket.
b)
Equity investments in Group companies and associates: Group companies are deemed to
be those related to the Company as a result of a relationship of control and associates are
companies over which the Company exercises significant influence.
c)
Held-to-maturity investments: debt securities with fixed maturity and determinable
payments that are traded in an active market and which the Company has the positive
intention and ability to hold to the date of maturity.
d)
Held-for-trading financial assets: assets acquired with the intention of selling them in the
near term and assets that form part of a portfolio for which there is evidence of a recent
actual pattern of short-term profit-taking. This category also includes financial derivatives
that are not financial guarantees (e.g. suretyships) and that have not been designated as
hedging instruments.
Initial recognition -
Financial assets are initially recognised at the fair value of the consideration given, plus any
directly attributable transaction costs.
In the case of equity investments inGroup companies affording control over the subsidiary, since 1
January 2010 the fees paid to legal advisers and other professionals relating to the acquisition of
the investment have been recognised directly in profit or loss.
Subsequent measurement -
Loans and receivables and held-to-maturity investments aremeasured at amortised cost.
Held-for-trading financial assets are measured at fair value, based on the expected results, the
estimated dividend payable, the price per share and the volatility thereof, and the risk-free rate at
year-end. The result of these fair value changes is recognised in profit or loss.
Investments in Group companies and associates are measured at cost net, where appropriate, of
any accumulated impairment losses. These losses are calculated as the difference between the
carrying amount of the investments and their recoverable amount. Recoverable amount is the
higher of fair value less costs to sell and the present value of the future cash flows from the
investment. Unless there is better evidence of the recoverable amount, it is based on the value of
the equity of the investee, adjusted by the amount of the unrealised gains existing at the date of
measurement (including any goodwill).
At least at each reporting date the Company tests financial assets not measured at fair value
through profit or loss for impairment. Objective evidence of impairment is considered to exist
when the recoverable amount of the financial asset is lower than its carrying amount. When this
occurs, the impairment loss is recognised in the income statement.
The Company uses the strategic plans of the various businesses to calculate any possible
impairment and discounts expected future cash flows. The Company prepares the various
projections individually, taking into account the expected future cash flows of each cash-
generating unit.
