Financial instruments
Financial instruments are classified and accounted for, according to the substance of the contractual arrangement, as financial assets, financial liabilities or equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Financial assets
Financial assets including trade debtors, are initially recognised at transaction cost which is considered to be fair value and subsequently held at amortised cost. At each statement of financial position date, the company assesses whether there is objective evidence that a financial asset has become impaired. Impairment losses are recorded as charges in the Statement of Income and the carrying amount of the financial asset is reduced by establishing an impairment loss provision. Impairment loss provisions are maintained at the level that management deems sufficient to absorb incurred losses. Financial assets are subsequently carried at transaction cost less provision for impairment.
Financial liabilities
Financial liabilities are presented as such in the Statement of Financial Position. 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. Finance costs and gains or losses relating to financial liabilities are included in the Statement of Income. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability.
Dividends and distributions relating to equity instruments are debited directly to equity.