NOTES TO
FINANCIAL STATEMENTS
December 31, 2015
62
CITIC ENVIROTECH LTD.
Annual Report
2015
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
2.5 Financial instruments (cont’d)
Financial liabilities and equity instruments
Classification as debt or equity
Financial liabilities and equity instruments issued by the Group are classified according to the
substance of the contractual arrangements entered into and the definitions of a financial liability and
an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct
issue costs.
Other financial liabilities
Trade and other payables are initially measured at fair value, net of transaction costs, and are
subsequently measured at amortised cost, using the effective interest method, with interest expense
recognised on an effective yield basis.
Interest-bearing bank loans, finance lease, medium term notes and convertible bonds are initially
measured at fair value, and are subsequently measured at amortised cost, using the effective interest
method. Any difference between the proceeds (net of transaction costs) and the settlement or
redemption of borrowings is recognised over the term of the borrowings in accordance with the
Group’s accounting policy for borrowing costs (see below).
Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make payment when
due in accordance with the original or modified terms of a debt instrument. A financial guarantee
contract issued by the Company and not designated as at fair value through profit or loss is
recognised initially at its fair value less transaction costs that are directly attributable to the issue
of the financial guarantee contract. Subsequent to initial recognition, the Company measures the
financial guarantee contract at the higher of: (i) the amount determined in accordance with FRS 37
Provisions, Contingent Liabilities and Contingent Assets
; and (ii) the amount initially recognised less,
when appropriate, cumulative amortisation recognition with FRS 18
Revenue
.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are
discharged, cancelled or expired. The difference between the carrying amount of the financial liability
derecognised and the consideration paid and payable is recognised in profit or loss.
