3 SIGNIFICANT ACCOUNTING POLICIES
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3.5 Financial instruments
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Non-derivative financial liabilities
(continued)
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.
Derivative financial instruments and hedging activities
The Group holds derivative financial instruments to hedge its foreign currency and interest
rate risk exposures. Embedded derivatives are separated from the host contract and
accounted for separately if the economic characteristics and risks of the host contract and
the embedded derivative are not closely related, a separate instrument with the same
terms as the embedded derivative would meet the definition of a derivative, and the
combined instrument is not measured at fair value through profit or loss. Multiple
embedded derivatives in a single instrument are treated as a single compound embedded
derivative if they share the same underlying risk exposures, are interdependent of each
other and are not readily separable.
On initial designation of the hedge, the Group formally documents the relationship
between the hedging instrument(s) and hedged item(s), including the risk management
objectives and strategy in undertaking the hedge transaction, together with the methods
that will be used to assess the effectiveness of the hedging relationship. The Group makes
an assessment, both at the inception of the hedge relationship as well as on an ongoing
basis, of whether the hedging instruments are expected to be “highly effective” in
offsetting the changes in the fair value or cash flows of the respective hedged items during
the period for which the hedge is designated, and whether the actual results of each
hedge are within a range of 80%-125%. For a cash flow hedge of a forecast transaction,
the transaction should be highly probable to occur and should present an exposure to
variations in cash flows that could ultimately affect reported Statement of Total Return.
Derivatives are recognised initially at fair value; attributable transaction costs are
recognised in the Statement of Total Return when incurred. Subsequent to initial
recognition, derivatives are measured at fair value, and changes therein are accounted for
as described below.
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in
cash flows attributable to a particular risk associated with a recognised asset or liability
or a highly probable forecast transaction that could affect Statement of Total Return, the
effective portion of changes in the fair value of the derivative is recognised in Unitholders’
funds and presented in the hedging reserve in equity. Any ineffective portion of changes
in the fair value of the derivative is recognised immediately in Statement of Total Return.
When the hedged item is a non-financial asset, the amount accumulated in Unitholders’
funds is included in the carrying amount of the asset when the asset is recognised. In
other cases, the amount accumulated in Unitholders’ funds is reclassified to Statement of
Total Return in the same period that the hedged item affects Statement of Total Return. If
the hedging instrument no longer meets the criteria for hedge accounting, expires or is
sold, terminated or exercised, or the designation is revoked, then hedge accounting is
discontinued prospectively. If the forecast transaction is no longer expected to occur, then
the balance in Unitholders’ funds is reclassified to Statement of Total Return.
Notes to the Financial Statements
Year ended 31 December 2014
160 | CapitaMall Trust Annual Report 2014
