A financial instrument is a contract that leads to a financial asset for one party and a financial liability or an equity instrument for another party.
(11a) Financial assets
The Group’s main financial assets are:
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Loans granted (see accounting policy 12)
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Trade and other receivables (see accounting policy 15)
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Cash and cash equivalents (see accounting policy 16)
These financial assets are classified as assets that are:
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carried at amortised cost after initial recognition. The valuation after initial recognition is performed on the basis of the effective interest method and the financial assets are subject to impairment. Gains and losses are recognised in profit or loss when the asset is terminated, settled, adjusted or impaired; or
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carried at fair value with gains and losses included in the other components of comprehensive income; or
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carried at fair value with gains and losses accounted for in profit or loss.
This classification is based on the Group’s business model for the management of the financial assets and the features of the contractual cash flows from the financial asset. For instance, the financial assets are measured at amortised cost if the following conditions are met:
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the financial asset is held as part of a business model aimed at holding financial assets for the purpose of receiving contractual cash flows; and
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the contractual terms of the financial asset result exclusively in cash flows from repayments of principal and interest payments on the outstanding principal amount.
Financial assets are no longer recognised in the statement of financial position if and only if:
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the contractual rights to the cash flows from the financial asset expire; or
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the Group transfers the financial asset and the transfer qualifies for derecognition die to the fact that substantially all the risks and rewards have been transferred.
Taking into account the applicable conditions, the aforementioned categories of financial assets held by the Group are valued at amortised cost.
Provision for expected credit losses
The Group holds various types of financial assets that are measured at amortised cost and are therefore subject to the IFRS 9 ECL model (expected credit loss model). This provision is determined on the basis of the expected credit losses for the coming twelve months, taking into account the creditworthiness of the customer. As long as there is no significant deterioration in credit risk, the provision continues to be based on the expected credit losses over twelve months. However, if a significant increase in credit risk is identified on an individual or collective basis, the provision is increased to the expected credit losses over the full term of the financial instrument. This is the case, for example, when a debtor has serious financial problems, fails to comply with a repayment arrangement, or shows other observable signs of increased credit risk.
For trade receivables and work in progress debit, the Company has used the simplified approach offered by IFRS 9, in which the provision for expected credit losses is always determined on the basis of the expected credit losses over the full term of these receivables.
The results of the analysis are included in note ‘6.26 Financial risks and risk management’.
(11b) Financial liabilities
The Group has the following financial liabilities:
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Interest-bearing loans (see accounting policy 19)
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Trade and other payables (see accounting policy 22)
These liabilities are carried at amortised cost after initial recognition, using the effective interest method. When a financial liability (or a part thereof) is eliminated or expires, it ceases to be recognised.
Exchanging debt instruments involving the same lender on substantially different terms is treated as a settlement of the original financial liability and recognition of a new financial liability. The same applies when the terms of an existing financial liability are substantially altered.
The difference between the carrying amount of a financial liability (or part thereof) that is redeemed or is transferred to a third party and the amount paid, including any transfer of assets other than cash and cash equivalents or assumed liabilities, is recognised in profit or loss.
(11c) Netting of financial assets and liabilities
Financial assets and financial liabilities are netted and presented as a net amount in the statement of financial position if:
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the Group has a legally enforceable right to settle the financial asset and the financial liability on a net basis; and
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the Group intends to settle on a net basis or simultaneously (to recover the receivable at the same time as the liability is settled).