ALLUP SILICA LIMITED NOTES TO THE FINANCIAL STATEMENTS 37 FINANCIAL REPORT ALLUP SILICA Year Ending 30 June 2023 Note 1: Summary of Significant Accounting Policies (continued) (c) Financial Instruments (cont.) Trade receivables are initially measured at the transaction price if the trade receivables do not contain a significant financing component or if the practical expedient was applied as specified in AASB 15.63. Classification and Subsequent Measurement Financial liabilities: Financial instruments are subsequently measured at: – amortised cost; or – fair value through profit or loss. A financial liability is measured at fair value through profit and loss if the financial liability is: – a contingent consideration of an acquirer in a business combination to which AASB 3: Business Combinations applies; – held for trading; or – initially designated as at fair value through profit or loss. All other financial liabilities are subsequently measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest expense in profit or loss over the relevant period. The effective interest rate is the internal rate of return of the financial asset or liability. That is, it is the rate that exactly discounts the estimated future cash flows through the expected life of the instrument to the net carrying amount at initial recognition. A financial liability is held for trading if: – it is incurred for the purpose of repurchasing or repaying in the near term; – part of a portfolio where there is an actual pattern of short-term profit taking; or – a derivative financial instrument (except for a derivative that is in a financial guarantee contract or a derivative that is in an effective hedging relationships). Any gains or losses arising on changes in fair value are recognised in profit or loss to the extent that they are not part of a designated hedging relationship. The change in fair value of the financial liability attributable to changes in the issuer's credit risk is taken to other comprehensive income and is not subsequently reclassified to profit or loss. Instead, the change in credit risk is transferred to retained earnings upon derecognition of the financial liability. If taking the change in credit risk in other comprehensive income enlarges or creates an accounting mismatch, then these gains or losses should be taken to profit or loss rather than other comprehensive income. A financial liability cannot be reclassified. Financial guarantee contracts: A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are initially measured at fair values (and if not designated as at fair value through profit or loss and do not arise from a transfer of a financial asset) and subsequently measured at the higher of: – the amount of loss allowance determined in accordance with AASB 9.3.25.3; and – the amount initially recognised less the accumulative amount of income recognised in accordance with the revenue recognition policies.
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