SEO Version
FORTERRA
ANNUAL REPORT 2013
NOTES TO THE
FINANCIAL STATEMENTS
132
30 DETERMINATION OF FAIR VALUES
A number of the Group’s accounting policies and disclosures require the determination of fair
value, for both financial and non-financial assets and liabilities. Fair values have been determined
for measurement and/or disclosure purposes based on the following methods. When applicable,
further information about the assumptions made in determining fair values is disclosed in the
notes specific to that asset or liability.
Derivatives
The fair values of interest rate swaps (Level 2 fair values) are based on broker quotes. These
quotes are tested for reasonableness by discounting estimated future cash flows based on the
terms and maturity of each contract and using market interest rates for a similar instrument at the
measurement date. Fair values reflect the credit risk of the instrument and include adjustments
to take into account the credit risk of the Group entity and counterparty when appropriate.
Non-derivative financial assets
These financial instruments include trade and other receivables and cash and cash equivalents.
The carrying values of these financial instruments are an approximation of the fair values because
they are short-term in nature or re-priceable.
Non-derivative financial liabilities
Fair value is calculated using discounted cash flow models, with the discount rate determined
based on benchmark rates for instruments with similar maturity and repricing plus a credit spread.
In determining the applicable credit spread, reasonable efforts have been made to determine
whether there has been a change in the credit risk associated with the financial asset or financial
liability. The carrying values of the interest-bearing liabilities at floating interest rates are an
approximation of the fair values because they are short-term in nature or re-priceable. In respect
of the liability component of convertible debt securities, the market rate of interest is determined
by reference to similar liabilities that do not have a conversion option.
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