NOTES TO THE FINANCIAL STATEMENTS
25 Financial instruments (Cont’d)
Determination of fair values
The following summarises the significant methods and assumptions used in estimating the fair values.
(a)
Financial derivatives
The fair values of derivative financial instruments such as interest rate swaps (Level 2 fair values) are based
on valuation statements from banks. 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.
(b)
Floating interest-bearing borrowings
Fair value is calculated based on discounted expected future principal and interest cash flows. The carrying
amounts of interest-bearing borrowings which are repriced quarterly approximate the corresponding fair
values (see Note 10).
(c)
Fixed rate notes
Fair value is calculated based on discounted expected future principal and interest cash flows.
(d)
Other financial assets and liabilities
The carrying amounts of financial assets and liabilities with a maturity of less than one year (including
trade and other receivables, cash and cash equivalents, and trade and other payables) approximate their
fair values because of the short period to maturity. All other financial assets and liabilities are discounted
to determine their fair values.
Fair value hierarchy
The table below analyses recurring financial assets and financial liabilities carried at fair value. The different levels
have been defined as follows:
•
Level 1:
quoted prices (unadjusted) in active markets for identical assets and liabilities that the
Group can access at the measurement date;
•
Level 2:
inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly and
•
Level 3:
unobservable inputs for the asset or liability.
If the inputs used to measure the fair value of an asset or a liability are categorised in different levels of the fair value
hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as
the lowest level input that is significant to the entire measurement (with Level 3 being the lowest).
The Group recognises any transfers between levels of the fair value hierarchy as of the end of the reporting
period during which the transfer has occurred. There were no such transfer during the current and previous year.
The table below analyses fair value measurements for financial assets and financial liabilities, by the levels in the
fair value hierarchy based on the inputs to valuation techniques.
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