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Note 7.1 Financial Instruments
This section analyses how the Commission manages financial risks within its operating environment.
7.1 Financial Instruments
7.1:A Categories of Financial Instruments
Financial assets at amortised cost
Cash and cash equivalents
Goods and services receivable
Total financial assets at amortised cost
Financial liabilities measured at amortised cost
Total financial liabilities measured at amortised cost
Financial assets are recognised when the Commission becomes a party to the contract, and , as a consequence, has a legal right to receive or a legal obligation to pay cash. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire or are transferred upon trade date.
Financial Assets at Amortised Cost
Financial assets included in this category need to meet two criteria:
1. the financial asset is held in order to collect the contractual cash flows; and
2. the cash flows are solely payments of principal and interest (SPPI) on the principal outstanding amount.
Amortised cost is determined using the effective interest method.
Effective Interest Method
Income is recognised on an effective interest rate basis for financial assets that are recognised at amortised cost.
Impairment of Financial Assets
Financial assets are assessed for impairment at the end of each reporting period based on Expected Credit Losses. The simplified approach for trade and contract receivables is used whereby the loss allowance is measured as the amount equal to the lifetime expected credit losses.
Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).
Lease liabilities are measured at the present value of the remaining lease payments, discounted using the Commission's incremental borrowing rate at 1 July 2019.