REA Group Ltd Annual Report 2021

Notes to the Consolidated Financial Statements for the year ended 30 June 2021 REA Group Ltd | Annual Report 2021 9. Financial risk management (continued) (b) Financial liabilities Accounting policies Recognition and measurement Financial liabilities are classified as subsequently measured at amortised cost, except for: – Financial liabilities at fair value through profit or loss. – Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies – Financial guarantee contracts – Commitments to provide a loan at a below-market interest rate – Contingent consideration recognised by an acquirer in a business combination to which AASB 3 applies. All financial liabilities are recognised initially at fair value, and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, and loans and borrowings. Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised, as well as through the EIR amortisation process. Amortised cost is calculated by considering any discount or premium on acquisition, and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual drawdown of the facility, are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is amortised on a straight-line basis over the term of the facility. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. This category generally applies to interest-bearing loans and borrowings (refer to section (c)). Financial guarantees After initial recognition, guarantees issued are subsequently measured at the higher of: – the amount of the loss allowance determined in accordance with the ECL model under AASB 9 Financial Instruments ; and – the amount initially recognised less, where appropriate, the cumulative amount of income recognised in accordance with the principles in AASB 15. ECLs are calculated based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. Further information about the Group’s ECLs on guarantee liabilities is disclosed in this note. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading, and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by AASB 9. Gains or losses on liabilities held for trading are recognised in the Consolidated Income Statement. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in AASB 9 are satisfied. 86 Financial Statements