A financial instrument is a contract that results in a financial asset for one party and a financial liability or an equity instrument for another party. Such financial instruments are initially recognised when the Group becomes a party to the contractual provisions of the instrument.
A trade receivable without a significant financing component is initially measured at the transaction price. Other financial assets and financial liabilities are initially measured at fair value and increased or decreased by transaction costs directly attributable to their acquisition or issue, except where an agreement is measured at fair value through profit or loss.
(11a) Financial assets
The Group’s main financial assets are:
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loans granted (see accounting policy 12)
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trade and other receivables (see accounting policy 15)
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cash and cash equivalents (see accounting policy 16)
These financial assets are classified as assets that are:
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carried at amortised cost after initial recognition. The valuation after initial recognition is performed on the basis of the effective interest method and the financial assets are subject to impairment. Gains and losses are recognised in profit or loss when the asset is terminated, settled, modified or impaired; or
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carried at fair value with gains and losses included in the other components of comprehensive income; or
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measured at fair value through profit or loss.
This classification is based on the Group’s business model for the management of the financial assets and the features of the contractual cash flows from the financial asset. Financial assets are measured at amortised cost if the following conditions are met:
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the financial asset is held as part of a business model aimed at holding financial assets for the purpose of receiving contractual cash flows; and
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the contractual terms of the financial asset result exclusively in cash flows from repayments of principal and interest payments on the outstanding principal amount.
Financial assets are no longer recognised in the statement of financial position if and only if:
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the contractual rights to the cash flows from the financial asset expire; or
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the Group transfers the financial asset and the transfer qualifies for derecognition die to the fact that substantially all the risks and rewards have been transferred.
Provision for expected credit losses
The Group holds various types of financial assets that are measured at amortised cost and are therefore subject to the IFRS 9 ECL model (expected credit loss model). This provision is determined on the basis of the expected credit losses for the coming twelve months, taking into account the creditworthiness of the customer. As long as there is no significant deterioration in credit risk, the provision continues to be based on the expected credit losses over twelve months. However, if a significant increase in credit risk is identified on an individual or collective basis, the provision is increased to the expected credit losses over the full term of the financial instrument. This is the case, for example, when a debtor has serious financial difficulties, does not comply with a repayment arrangement, or shows other observable signs of increased credit risk.
For trade receivables and work in progress debit, the Company has used the simplified approach offered by IFRS 9, in which the provision for expected credit losses is always determined on the basis of the expected credit losses over the full term of these receivables.
The results of the analysis are included in note ‘6.26 Financial risks and risk management’.
(11b) Financial liabilities
The Group has the following financial liabilities:
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interest-bearing loans (see accounting policy 19)
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trade and other payables (see accounting policy 22)
These liabilities are carried at amortised cost after initial recognition, using the effective interest method. When a financial liability (or a part thereof) is eliminated or expires, it ceases to be recognised.
Exchanging debt instruments involving the same lender on substantially different terms is treated as a settlement of the original financial liability and recognition of a new financial liability. The same applies when the terms of an existing financial liability are substantially altered.
The difference between the carrying amount of a financial liability (or part of a financial liability) that has been extinguished or transferred to a third party and the consideration paid, including any assets transferred other than cash and cash equivalents or liabilities assumed, is recognised in profit or loss.
(11c) Netting of financial assets and liabilities
Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position when the Group:
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has a legally enforceable right to settle the financial asset and the financial liability on a net basis; and
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intends to settle the liability on a net basis or to realise the receivable at the same time as the liability is settled.