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AAK Annual Report 2016

54 Financial instruments The Group classifies its financial assets in the following categories: financial assets measured at fair value in profit or loss and loan receivables and accounts receivables. The classification is dependent on the purpose for which the financial asset was acquired. Management establishes the classification of financial assets at initial recognition. (a) Financial assets recognized at fair value through profit or loss Financial assets recognized at fair value through profit or loss are financial assets held for trading. A financial asset is classified under this category if it is acquired for the primary purpose of being sold shortly thereafter. Derivatives are classified as being held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are expected to be settled within 12 months, otherwise they are classified as non-current assets. (b) Loan receivables and accounts receivables Loan receivables and accounts receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These are included in current assets, with the exception of items with a maturity of more than 12 months after the end of the reporting period, which are classified as non-current assets. The Group’s loan receivables and accounts receivables consist of accounts receivables and other receivables, as well as cash and cash equivalents in the balance sheet. A financial asset or financial liability is recognized in the balance sheet when the Company enters a contract for the instrument (i.e. on the relevant business day). A financial liability is recognized when the counterparty has performed and a contractual duty to pay arises, even if no invoice is received. A financial asset is derecognized when the rights to cash flow in the contract mature or the rights are transferred in a transaction that transfers essentially all risks and remunerations from ownership to the assets transferred. This also applies to parts of financial assets. A financial liability is removed from the balance sheet when the duty in the contract is performed or otherwise extinguished. This also applies to parts of financial liabilities. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They arise when the Group provides money, goods or services directly to a debtor (usually a customer) with no intention of trading the receivable. These are recorded as current assets when WKHPDWXULW\LVOHVVWKDQPRQWKVIURPWKHWUDQVDFWLRQGDWH/RDQVDQGUHFHLYDEOHVDUHUHFRJQLHGLQ³$FFRXQWVUHFHLYDEOHV´ DQG³2WKHUUHFHLYDEOHV´LQWKHEDODQFHVKHHW Loan receivables and accounts receivables are recognized after the acquisition date at amortized cost using the effective interest rate method. Financial instruments are initially recognized at fair value plus transaction costs, which applies to all financial assets that are not recognized at fair value through profit or loss, for which attributable transaction costs are instead recognized in the income statement. Derivatives Derivative instruments are recognized in the balance sheet on the date of contract and at fair value, both initially and upon subsequent revaluation. The method of recognizing gain or loss arising from revaluation depends on whether the derivative is identified as a hedging instrument, and, in such event, the nature of the item being hedged. The Group identifies certain derivatives as either: (a) hedging of fair value regarding a recognized asset or liability or a firm commitment (fair-value hedging), (b) hedging of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedging). When the transaction is undertaken, the Group documents the relationship between the hedging instrument and the hedged item, DVZHOODVWKHKHGJH¶VUROHLQWKH*URXS¶VULVNPDQDJHPHQWREMHFWLYHVDQGVWUDWHJ\7KH*URXSDOVRGRFXPHQWVLWVDVVHVVPHQW both when it enters into hedging contracts and on an ongoing basis, as to whether the derivative instruments used in hedging transactions are effective in terms of counteracting changes in fair value or cash flow that are attributable to the hedged items. 7KH&RPSDQ\¶VGHULYDWLYHLQVWUXPHQWVFRQVLVWRI27&RU³RYHUWKHFRXQWHU´GHULYDWLYHVFRQFOXGHGZLWKILQDQFLDOFRXQWHUSDUWLHV listed standardized derivatives and sales and purchase contracts that do not meet the exemption criteria for being recognized as a derivative (that is, that are not deemed to be for own use). According to IAS 39, only contracts not designed for physical delivery may be measured at market price. AAK’s business model permits (enables) the net settlement of purchase and sales contracts entered into for physical delivery. Derivatives that are not used as hedging instruments for which hedge accounting is applied are recognized at fair value in the income statement. Hedge accounting Hedging of fair value Changes in fair value of a derivative that has been formally identified for hedging of fair value and meets the conditions for hedge accounting are recognized on the same line in the income statement as any change in fair value attributable to the hedged risk for the hedged asset or liability. The Group applies hedging of fair value for raw materials and foreign currency in sales and purchase contracts. The gain or loss attributable to the ineffective portion is recognized with immediate effect in SURILWRUORVVLQ´5DZPDWHULDOVDQGFRQVXPDEOHVDQGFKDQJHVLQLQYHQWRU\´ Cash flow hedges The effective portion of changes in fair value in a derivative instrument, identified as a cash flow hedge and that fulfils the conditions for hedge accounting, is recognized in other comprehensive income. The gain or loss attributable to the ineffective SDUWLVUHFRJQLHGZLWKLPPHGLDWHHIIHFWLQWKHLQFRPHVWDWHPHQWLWHP³2WKHUILQDQFLDOLWHPV´ Amounts in equity are reversed to the income statement. for those periods during which the hedged item affects profit or loss (e.g. when the forecast sale that is hedged takes place). The gain or loss that is attributable to the effective portion of an interest UDWHVZDSWKDWKHGJHVYDULDEOHUDWHERUURZLQJLVUHFRJQLHGLQWKHLQFRPHVWDWHPHQWLWHP³)LQDQFLDOHSHQVHV´7KHJDLQRUORVV DWWULEXWDEOHWRWKHLQHIIHFWLYHSRUWLRQLVUHFRJQLHGLQWKHLQFRPHVWDWHPHQWLWHP³2WKHUILQDQFLDOLWHPV´,IDKHGJHRIDIRUHFDVW transaction subsequently leads to the recognition of a non-financial asset (e.g. inventory or property, plant and equipment), the


AAK Annual Report 2016
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