With the implementation of AASB 9 Financial Instruments for the first time in 2019, ARENA classifies its financial assets in the following categories:
a) financial assets at fair value through other comprehensive income; and
b) financial assets measured at amortised cost.
The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are recognised and derecognised upon trade date.
Comparatives have not been restated on initial application.
Financial Assets at Amortised Cost
Financial assets included in this category need to meet two criteria:
- the financial asset is held in order to collect the contractual cash flows; and
- the cash flows are solely payments of principal and interest (SPPI) on the principal outstanding amount. Amortised cost is determined using the effective interest rate.
Effective Interest Method
The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.
Financial Assets at Fair Value Through Other Comprehensive Income (FVOCI)
Financial assets measured at fair value through other comprehensive income are held with the objective of both collecting contractual cash flows and selling the financial assets and the cash flows meet the SPPI test.
Any gains or losses as a result of fair value measurement or the recognition of an impairment loss allowance is recognised in other comprehensive income.
Impairment of Financial Assets
Financial assets are assessed for impairment at the end of each reporting period based on Expected Credit Losses, using the general approach which measures the loss allowance based on an amount equal to lifetime expected credit losses where risk has significantly increased, or an amount equal to 12-month expected credit losses if risk has not increased.
The simplified approach for trade, contract and lease receivables is used. This approach always measures the loss allowance as the amount equal to the lifetime expected credit losses.
A write-off constitutes a derecognition event where the write-off directly reduces the gross carrying amount of the financial asset.
Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.
Financial liabilities at Amortised Cost
Trade creditors and other payables are recognised at amortised cost using the effective interest method, with interest expense recognised on an effective interest basis. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced). Trade creditors and other payables are derecognised on payment.