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102 Unilever Annual Report and Accounts 2010
Financial statements
Notes to the consolidated financial statements Unilever Group
15 Financial instruments and treasury risk management (continued)
The fair values of the financial assets and liabilities are included at the amount at which the instruments could be exchanged in a current
transaction between willing parties other than in a forced or liquidation sale. The following methods and assumptions were used to estimate
thefair values:
• Cash and cash equivalents, other financial assets, bank loans and overdrafts have fair values that approximate to their carrying amounts because
of their short-term nature.
• The fair value of unquoted available-for-sale assets is based on recent trades in liquid markets, observable market rates and statistical modelling
techniques such as Monte Carlo simulation.
• The fair values and the carrying amounts of all other listed investments included in financial assets and preference shares included in financial
liabilities are based on their market values.
• The fair values of listed bonds are based on their market value.
• Non-listed bonds and other loans are based on the net present value of the anticipated future cash flows associated with these instruments
using rates currently available for debt on similar terms, credit risk and remaining maturities.
• Fair values for finance lease creditors have been assessed by reference to current market rates for comparable leasing arrangements.
• The Group enters into derivative financial instruments with various counterparties. Derivatives valued using valuation techniques with
market observable inputs are mainly interest rate swaps, foreign exchange forward contracts and commodity forward contracts. The models
incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate curves and
forward rate curves of the underlying commodity. In the balance sheet the value of bonds and other loans is shown at amortised cost unless
thebonds are part of an effective fair value hedge accounting relationship, in which case the value of the bond is adjusted with the market
valueof the related derivative.
Fair value hierarchy
IFRS 7, ‘Financial instruments: Disclosures’, requires disclosure of fair value measurements by level of the following fair value measurement
hierarchy:
• Level 1: quoted prices for identical instruments;
• Level 2: directly or indirectly observable market inputs other than Level 1 inputs;
• Level 3: inputs which are not based on observable market data.
As at 31 December 2010, the Group held the following financial instruments measured at fair value in each level described above:
€ million € million € million € million
Total fair
value
Level 1 Level 2 Level 3 2010
Assets measured at fair value
Other non-current financial assets 11
Available-for-sale financial assets 197 187 22 406
Financial assets at fair value through profit or loss 56 – 47 103
Cash and cash equivalents 14
Available-for-sale financial assets – 696 – 696
Other financial assets 14
Available-for-sale financial assets – 127 – 127
Financial assets at fair value through profit or loss – 17 – 17
Derivatives related to financial liabilities – 403 – 403
Derivatives used for hedging trading activities (part of Trade and other receivables) – 94 – 94
Other derivatives (part of Trade and other receivables) – – – –
Liabilities measured at fair value
Bonds and other loans, subject to fair value hedge accounting 14 – (2,331) – (2,331)
Derivatives related to financial liabilities 14 – (303) – (303)
Derivatives used for hedging trading activities (part of Trade payables and other liabilities) – (63) – (63)