126 | CapitaLand Limited Annual Report 2014
Appendix
Notes to the Financial Statements
Year ended 31 December 2014
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont’d)
2.8 Financial instruments
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Changes in the fair value of the derivative hedging instrument designated as a cash now hedge are recognised
directly in other comprehensive income and presented in the hedging reserve in equity to the extent that
the hedge is effective. Any ineffective portion of changes in the fair value of the derivative is recognised
immediately in the promt or loss.
When the hedged item is a non-mnancial asset, the amount accumulated in equity is retained in other
comprehensive income and reclassimed to promt or loss in the same period or periods during which the
non-mnancial item affects promt or loss. In other cases as well, the amount accumulated in equity is reclassimed
to promt or loss in the same period that the hedged item affects promt or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or
exercised, hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected
to occur, then the balance is reclassimed to promt or loss.
Fair value hedges
Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognised
in the promt or loss. The hedged item is adjusted to renect change in its fair value in respect of the risk being
hedged, with any gain or loss being recognised in the promt or loss.
Hedge of net investment in a foreign operation
In the Company’s mnancial statements, foreign currency differences arising from the retranslation of a mnancial
liability designated as a hedge of a net investment in a foreign operation are recognised in the promt or loss.
On consolidation, such differences are recognised directly in other comprehensive income and presented in
the foreign currency translation reserve in equity, to the extent that the hedge is effective. To the extent that the
hedge is ineffective, such differences are recognised in the promt or loss. When the hedged net investment
is disposed off, the cumulative amount in other comprehensive income is transferred to the promt or loss.
Separable embedded derivatives
Changes in the fair value of separated embedded derivatives are recognised immediately in the promt or loss.
Other non-trading derivatives
When a derivative mnancial instrument is not designated in a hedge relationship that qualimes for hedge
accounting, all changes in its fair value are recognised immediately in the promt or loss.
(c) Convertible bonds
Convertible bonds that can be converted into share capital where the number of shares issued does not
vary with changes in the fair value of the bonds are accounted for as compound mnancial instruments.
The gross proceeds are allocated to the equity and liability components, with the equity component being
assigned the residual amount after deducting the fair value of the liability component from the fair value of
the compound mnancial instrument.
Subsequent to initial recognition, the liability component of convertible bonds is measured at amortised cost
using the effective interest method. The equity component of convertible bonds is not re-measured. When
the conversion option is exercised, its carrying amount will be transferred to the share capital. When the
conversion option lapses, its carrying amount will be transferred to revenue reserve.
When a convertible bond is being repurchased before its maturity date, the purchase consideration (including
directly attributable costs, net of tax effects) is allocated to the liability and equity components of the instrument
at the date of transaction. Any resulting gain or loss relating to the liability component is recognised in the
promt or loss. In an exchange of convertible bond, the difference between the net proceeds of new convertible
bond and the carrying value of the existing convertible bond (including its equity component) is recognised
in the promt or loss.
