Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability.
Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity.
Loans receivable are initially recognised at transaction value and subsequently measured at amortised cost. Loans are assessed at each reporting date for indicators of impairment. Where there is objective evidence that amounts may not be fully recoverable, a provision is recognised based on the expected recoverable amount, taking into account the value of any underlying security. Interest income is recognised in accordance with the company’s revenue recognition policy.
Intercompany receivables and payables are measured at amortised cost and are subject to recoverability assessment where appropriate.
Borrowings are recognised initially at transaction value and subsequently measured at amortised cost. Interest expense is recognised using a time-apportioned basis.