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LIPPO MALLS INDONESIA RETAIL TRUST ANNUAL REPORT 2014
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Cash and cash equivalents
Cash and cash equivalents include bank and cash balances, and on demand deposits. For the statement of cash
flows, the items include cash and cash equivalents less cash subject to restriction. Cash flows arising from hedging
instruments are classified as operating, investing or financing activities, on the basis of the classification of the cash
flows arising from the hedged item.
Hedging
The entity is exposed to currency and interest rate risks. The policy is to reduce currency and interest rate exposures
through derivatives and other hedging instruments. From time to time, there may be borrowings and foreign exchange
arrangements or interest rate swap contracts or similar instruments entered into as hedges against changes in interest
rates, cash flows or the fair value of financial assets and liabilities. The gain or loss from remeasuring these hedging
or other arrangement instruments at fair value are recognised in profit or loss. The derivatives and other hedging
instruments used are described below, in the notes to the financial statements.
Derivatives
All derivatives are initially recognised and subsequently carried at fair value. Certain derivatives are entered into in
order to hedge some transactions and all the strict hedging criteria prescribed by FRS 39 are not met. In those cases,
even though the transaction has its economic and business rationale, hedge accounting cannot be applied. As a result,
changes in the fair value of those derivatives are recognised directly in profit or loss and the hedged item follows
normal accounting policies.
Financial liabilities
Initial recognition, measurement and derecognition:
A financial liability is recognised on the statement of financial position when, and only when, the entity becomes
a party to the contractual provisions of the instrument and it is derecognised when the obligation specified in the
contract is discharged or cancelled or expires.
The initial recognition of financial liability is at fair value normally represented by the transaction price. The transaction
price for financial liability not classified at fair value through profit or loss includes the transaction costs that are directly
attributable to the acquisition or issue of the financial liability. Transaction costs incurred on the acquisition or issue of
financial liability classified at fair value through profit or loss are expensed immediately. The transactions are recorded
at the trade date. Financial liabilities including bank and other borrowings are classified as current liabilities unless there
is an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting year.
Subsequent measurement:
Subsequent measurement based on the classification of the financial liabilities in one of the following two categories
under FRS 39 is as follows:
#1. Liabilities at fair value through profit or loss: Liabilities are classified in this category when they are incurred
principally for the purpose of selling or repurchasing in the near term (trading liabilities) or are derivatives
(except for a derivative that is a designated and effective hedging instrument) or have been classified in this
category because the conditions are met to use the “fair value option” and it is used. Financial guarantee
contracts if significant are initially recognised at fair value and are subsequently measured at the greater of
(a) the amount determined in accordance with FRS 37 and (b) the amount initially recognised less, where
appropriate, cumulative amortisation recognised in accordance with FRS 18. All changes in fair value relating
to liabilities at fair value through profit or loss are charged to profit or loss as incurred.
#2. Other financial liabilities: All liabilities, which have not been classified in the previous category fall into this
residual category. These liabilities are carried at amortised cost using the effective interest method. Trade and
other payables and borrowings are classified in this category. Items classified within current trade and other
payables are not usually re-measured, as the obligation is usually known with a high degree of certainty and
settlement is short-term.
Notes to the Financial Statements
(Cont’d)
31 December 2014
