Notes to the Financial Statements For the financial year ended 31 December 2024 2 MATERIAL ACCOUNTING POLICIES (continued) 2.7 Financial instruments (continued) (f) Derivative financial instruments and hedge accounting (continued) Cash flow hedges The Group designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. Where the hedged forecast transaction subsequently results in the recognition of a non-financial item, such as inventory, the amounts recognised as OCI is included in the initial cost of the non-financial item. If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedging reserve remains in equity until, for a hedge of a transaction resulting in recognition of a non-financial item, it is included in the non-financial item’s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss. Net investment hedge The Group designates certain derivatives and non-derivative financial liabilities as hedges of foreign exchange risk on a net investment in a foreign operation. When a derivative instrument or a non-derivative financial liability is designated as the hedging instrument in a hedge of a net investment in a foreign operation, the effective portion of, for a derivative, changes in the fair value of the hedging instrument or, for a non-derivative, foreign exchange gains and losses is recognised in OCI and presented in the translation reserve within equity. Any ineffective portion of the changes in the fair value of the derivative or foreign exchange gains and losses on the non-derivative is recognised immediately in profit or loss. The amount recognised in OCI is reclassified to profit or loss on disposal of the foreign operation. Separable embedded derivatives Changes in the fair value of separated embedded derivatives are recognised immediately in profit or loss. (g) Sustainability-linked loans The Group borrows loans with contractual cash flows based on the Group meeting several sustainability performance targets. The Group has determined that the variability in cash flows linked to the Group’s sustainability performance targets is a non-financial variable specific to the parties to the contract, and therefore, in accordance with the Group’s accounting policy, the feature fails the definition of a derivative. Accordingly, the feature is not separated. Instead, it is included in the calculation of the effective interest of the loans. 108 CapitaLand Investment Limited Notes to the Financial Statements For the financial year ended 31 December 2024 2 MATERIAL ACCOUNTING POLICIES (continued) 2.7 Financial instruments (continued) (h) Financial guarantees The Group accounts for financial guarantee contracts as financial liabilities. Financial guarantees are financial instruments issued by the Group that require the issuer to make specified payments to reimburse the holder for the loss it incurs because a specified debtor fails to meet payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantees issued are initially measured at fair value. Subsequently, they are measured at the higher of the loss allowance determined in accordance with SFRS(I) 9 Financial Instruments and the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of SFRS(I) 15 Revenue from Contract with Customers. Expected credit losses (ECLs) are a probability-weighted estimate of credit losses. ECLs are measured for financial guarantees issued as the expected payments to reimburse the holder less any amounts that the Group expects to recover. Liabilities arising from financial guarantees are included within “borrowings”. (i) Impairment of financial assets The Group assesses on a forward-looking basis the ECL associated with its financial assets carried at amortised cost and FVOCI, contract assets and financial guarantees. For trade receivables, lease receivables and contract assets, the Group applies the simplified approach permitted by SFRS(I) 9 Financial Instruments, which requires expected lifetime losses to be recognised from initial recognition of the receivables. The Group applies the general approach of 12-month ECL at initial recognition for all other financial assets and financial guarantee contracts. At each reporting date, the Group assesses whether financial assets carried at amortised cost are creditimpaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data: • significant financial difficulty of the borrower or issuer; • a breach of contract such as a default or being more than 90 days past due; • the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; • it is probable that the borrower will enter bankruptcy or other financial reorganisation; or • the disappearance of an active market for a security because of financial difficulties. Presentation of allowance for ECLs on the balance sheet Loss allowance for financial assets measured at amortised cost are deducted from the gross carrying amount of these assets. Loss allowance for financial guarantee contracts are recognised as a financial liability to the extent that they exceed the initial carrying amount of the financial guarantee contracts less the cumulated income recognised. 109 Annual Report 2024
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