Page 88 - SAR141018_Forterra AR 2013

FORTERRA
ANNUAL REPORT 2013
NOTES TO THE
FINANCIAL STATEMENTS
86
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Financial instruments (Continued)
(iii) Compound financial instruments (Continued)
Convertible debts denominated in the functional currency of the Trust (Continued)
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 re-measured 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.
(iv) Derivative financial instruments
The Group primarily holds derivative financial instruments to hedge its interest rate
risk exposure.
Derivatives are recognised initially at fair value; attributable transaction costs are
recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives
are measured at fair value, and changes therein are accounted for in profit or loss.