Consolidated financial statement of JSW S.A. Capital Group for 2012

2.9. Financial assets

Classification – financial instruments

The Group determines the classification of its financial assets upon their initial capture. The classification is based on the purpose of acquiring the financial assets. The classification of derivatives depends on their purpose and whether the requirements for the use of hedge accounting as specified in IAS 39 have been met. Derivatives are divided into hedging derivatives and derivatives at fair value through profit or loss.

The following rules for classification of financial instruments into respective categories have been adopted:

1. Financial assets carried at fair value through profit or loss
   This category includes financial assets held for trading. An asset is classified in this category if it was purchased with the main purpose of being sold in a short period. This category also includes derivatives, provided that they are not subject to hedge accounting. Assets in this category are classified in current assets according to the specific derivatives presentation principles described in Note 11.
2. Loans and receivables
   Loans and receivables include financial assets with determined or determinable payments, not listed on an active market, which are not classified as derivative instruments. They are classified as current assets unless their maturity exceeds 12 months from the end-date of the financial year (otherwise they are classified as non-current assets). The “Loans and receivables” category includes trade receivables and other receivables and cash and cash equivalents.
3. Financial assets held to maturity
   Investments held to maturity include financial assets except for derivatives, with determined or determinable payments and with a specified maturity, for which the Group has a positive intention and ability to hold to maturity, except for assets classified by the Group as assets at fair value through profit or loss or designated by the Group as available for sale or those that satisfy the definition of loans and receivables.
4. Financial assets available for sale
   Financial assets available for sale are non-financial derivatives designated for this category or those that are not classified in any of the other categories. They are classified as non-current assets, provided that the Management Board has no intention of selling them within 12 months of the final day of the reporting period.

Recognition and measurement

Regular financial asset purchase and sale transactions are recognized as at the date of the transaction, i.e. the date on which the Group undertakes to purchase or sell the respective asset. As at the day of concluding the transaction, financial instruments are carried at fair value, increased by transaction costs which are directly ascribed to purchase or issue of the financial asset or financial liability, excluding financial assets and liabilities carried at fair value through profit or loss, which are initially carried at fair value.

After initial recognition, financial assets shown at fair value through profit or loss and financial assets available for sale are carried at fair value. Loans and receivables and financial assets held to maturity are measured at amortized cost using the effective interest rate method. Unlisted financial instruments included in the available for sale category, for which it is not possible to reliably determine the fair value, are carried at cost, i.e. the purchase price.

Financial assets are excluded from the accounting ledgers when the rights to obtain cash flows from them have expired or have been transferred and the Group transferred principally all risk and all benefits following from their ownership. If there is no transfer of principally all risk and all benefits following from the ownership of an asset, the asset is excluded from the accounting ledgers when the Group loses control over it.

Impairment

On every final day of a reporting period, the Group evaluates whether there are objective proofs that the financial asset or group of financial assets has been impaired. A financial asset or a group of financial assets is considered to have been impaired and loss on the impairment is considered to have been incurred only if there exist objective proofs indicating impairment resulting from one or more events that have taken place after the initial capture of the asset (the ‘loss-causing event’) and the loss-causing event(s) has influenced the expected future cash flows resulting from the financial asset or the group of financial assets whose reliable estimation is possible.

1. Assets measured at amortized cost, including trade receivables and other receivables of financial nature
   The amount of loss is defined as the difference between the carrying value of an asset and the current value of estimate future cash flows (excluding future credit losses that have not been incurred so far) discounted according to the original effective interest rate for the respective financial asset. The carrying value of the asset is reduced and the amount of the impairment charge is recognized in the financial result. If a loan or investment is held to maturity, it bears interest at the variable interest rate; the discount rate for the purpose of determining the amount of the impairment loss is the current effective interest rate envisaged in the agreement. As a practical solution, the Group may verify impairment on the basis of the fair value of the instrument determined using the observable market price.
   If, at a later date, the amount of the impairment loss decreases, and such decrease can be objectively tied to an event that took place after showing the impairment, the previously recognized impairment loss is reversed in the financial result.
2. Assets measured at cost
   If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment charges are not reversed.
3. Assets classified as available for sale
   If there are premises for impairment of financial assets available for sale in the case of which the decrease of the fair value was recognized in other comprehensive income, then the cumulative losses – defined as the difference between the purchase price and the current fair value minus all impairment losses of such assets, previously recognized in the financial result – are subject to reclassification from equity to profit or loss, as an adjustment resulting from reclassification.
   Equity instrument impairment losses are not reversed in the financial result. If at a later date the fair value of a debt instrument classified as available for sale increases and the increase can be objectively attributed to an event that took place after showing the impairment loss in the financial result, the impairment charge is reversed also in the financial result.