NOTES TO THE FINANCIAL STATEMENTS
For the Financial Year Ended 31 December 2014
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
2.30 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING (CONT’D)
(b)
Cash flow hedges (cont’d)
If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously
recognised in equity is transferred to profit or loss. If the hedging instrument expires or is sold, terminated or
exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss
previously recognised in other comprehensive income remains in other comprehensive income until the forecast
transaction or firm commitment affects profit or loss.
(c)
Hedges of a net investment
Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as
part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging
instrument relating to the effective portion of the hedge are recognised as other comprehensive income while
any gains or losses relating to the ineffective portion are recognised in profit or loss. On disposal of the foreign
operation, the cumulative value of any such gains or losses recorded in equity is transferred to profit or loss.
Current versus non-current classification
Derivative instruments are classified as current or non-current or separated into a current and non-current portion based
on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows):
– When the Group hold a derivative instrument as an economic hedge (and do not apply hedge accounting) for a
period beyond 12 months after the reporting date, the derivative instrument is classified as non-current (or separated
into current and non-current portions) consistent with the classification of the underlying item.
– Embedded derivative that is not closely related to the host contract is classified consistent with the cash flows of
the host contract.
– Derivative instrument that is designated as, and are effective hedging instrument, is classified consistently with the
classification of the underlying hedged item. The derivative instrument is separated into a current portion and a
non-current portion only if a reliable allocation can be made.
2.31 FINANCIAL GUARANTEES
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder
for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt
instrument.
Financial guarantees are initially recognised as a liability at fair value, adjusted for transaction costs that are directly attributable
to the issuance of the guarantee. Subsequent to initial recognition, financial guarantees are recognised as income in profit
or loss over the period of the guarantee. If it is probable that the liability will be higher than the amount initially recognised
less amortisation, the liability is recorded at the higher amount with the difference charged to profit or loss.
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THE STRAITS TRADING COMPANY LIMITED ANNUAL REPORT 2014
