Lenovo 2016 Annual Report Download - page 175

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2015/16 Annual Report Lenovo Group Limited
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Financial assets (continued)
Recognition and measurement
Regular way purchases and sales of financial assets are recognized on the trade-date, the date on which the
Group commits to purchase or sell the asset. Financial assets not carried at fair value through profit or loss
are initially recognized at fair value plus transaction costs. Financial assets carried at fair value through profit
or loss are initially recognized at fair value, and transaction costs are expensed in the income statement.
Financial assets are derecognized when the rights to receive cash flows from the investments have expired
or have been transferred and the Group has transferred substantially all risks and rewards of ownership.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently
carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective
interest method.
Gains and losses arising from changes in the fair value of the “Financial assets at fair value through profit
or loss” category are presented in the income statement in the period in which they arise. Dividend income
from financial assets at fair value through profit or loss is recognized in the income statement as part of other
income when the Group’s right to receive payments is established.
Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are
recognized as other comprehensive income/expense.
When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments
previously recognized as other comprehensive income/expense are reclassified to the income statement as
gains or losses from securities.
Interest on available-for-sale securities calculated using the effective interest method is recognized in the
income statement as part of other income. Dividends on available-for-sale equity instruments are recognized
in the income statement as part of other income when the Group’s right to receive payments is established.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a
legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or
realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent
on future events and must be enforceable in the normal course of business and in the event of default,
insolvency or bankruptcy of the company or the counterparty.
(j) Impairment of financial assets
(i) Assets carried at amortized cost
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset
or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and
impairment losses are incurred only if there is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event
(or events) has an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing
significant financial difficulty, default or delinquency in interest or principal payments, the probability
that they will enter bankruptcy or other financial reorganization, and where observable data indicate
that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or
economic conditions that correlate with defaults.