The company classifies financial instruments in accordance with Sections 11 and 12 of FRS 102. Financial instruments are recognised in the company’s balance sheet when the company becomes a party to the contractual provisions of the instrument.
Basic Financial Instruments
Basic financial instruments are initially measured at the transaction price, including transaction costs. Subsequently, basic financial instruments are measured at amortised cost using the effective interest rate method. This includes trade and other receivables, cash and bank balances, and trade and other payables, unless the arrangement constitutes a financing transaction. If it does, then they are initially measured at the present value of future payments, discounted at a market rate of interest.
Other Financial Instruments
Other financial instruments not meeting the criteria of basic financial instruments are initially measured at fair value. At each reporting date, they are measured at fair value, with changes in fair value recognised in profit or loss.
Impairment of Financial Assets
At each reporting date, financial assets measured at cost or amortised cost are assessed for indicators of impairment. If an asset is impaired, the impairment loss is recognised in profit or loss.