Page 70 - Forterra

68 FORTERRA
ANNUAL REPORT 2012
NOTES TO THE
FINANCIAL STATEMENTS
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Financial instruments (Continued)
(ii) Non-derivative financial liabilities (Continued)
Financial assets and liabilities are offset and the net amount presented in the Statement
of Financial Position when, and only when, the Group has a legal right to offset the
amounts and intends either to settle on a net basis or to realise the asset and settle
the liability simultaneously.
Such financial liabilities are recognised initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, these financial liabilities are
measured at amortised cost using the effective interest method.
(iii) Compound financial instruments
Compound financial instruments issued by the Group comprise convertible bonds
denominated in Singapore Dollars and convertible notes denominated in Chinese RMB,
which are different from the functional currency of the Trust. These convertible debt
instruments can be converted to units of the Trust at the option of the holder, where
the number of units to be issued does not vary with changes in their fair value.
Convertible debts denominated in the functional currency of the Trust
The liability component of a compound financial instrument is recognised initially at
the fair value of a similar liability that does not have an equity conversion option. The
equity component is recognised initially at the difference between the fair value of the
compound financial instrument as a whole and the fair value of the liability component.
Any directly attributable transaction costs are allocated to the liability and equity
components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial
instrument is measured at amortised cost using the effective interest method. The
equity component of a compound financial instrument is not remeasured subsequent
to initial recognition. Interest and gains and losses related to the financial liability are
recognised in profit or loss. On conversion, the financial liability is reclassified to equity;
no gain or loss is recognised on conversion.
Foreign currency convertible debts
On issuance of foreign currency convertible debts, the proceeds are allocated between
the embedded equity conversion option and the liability component. The embedded
option is recognised at its fair value. The liability component is recognised as the
difference between total proceeds and the fair value of the equity conversion option.
The equity conversion option is subsequently carried at its fair value with fair value
changes recognised in profit or loss. The liability component is carried at amortised
cost until the liability is extinguished on conversion or redemption. When an equity
conversion option is exercised, the carrying amounts of the liability component and
the equity conversion option are derecognised with a corresponding recognition of
units in issue.