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Annual Report & Accounts 2014 - NOTES
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1. SIGNIFICANT ACCOUNTING POLICIES continued 1.17 Financial Instruments continued Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. 1.17.1 Non-Derivative Financial Instruments Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments are recognised initially at fair value, plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured at amortised cost using the effective interest method. Provisions for impairment are made against financial assets if considered appropriate and any impairment is recognised in profit or loss. 1.17.2 Cash and Cash Equivalents Cash and cash equivalents comprise cash balances and any balances with payment processors that are repayable on demand. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Accounting for financial income and financial expenses are discussed in notes 1.14 and 1.12 respectively. 1.17.3 Available for Sale Financial Assets (AFS) AFS financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. The Group's AFS financial assets include the equity investment in Betit Holdings Limited (BHL). AFS financial assets are measured at fair value. Gains and losses are recognised in other comprehensive income and reported within the AFS reserve within equity, except for interest and dividend income, impairment losses and foreign exchange differences on monetary assets, which are recognised in profit or loss. When the asset is disposed of or is determined to be impaired, the cumulative gain or loss recognised in other comprehensive income is reclassified from the equity reserve to profit or loss. Interest calculated using the effective interest method and dividends are recognised in profit or loss within finance income. For AFS equity investments impairment reversals are not recognised in profit loss and any subsequent increase in fair value is recognised in other comprehensive income. 1.17.3 Derivative Financial Instruments Derivative financial instruments are accounted for at Fair Value Through Profit and Loss (FVTPL). The options associated with the Group's investment in BHL are considered derivative financial instruments and are carried at their fair value which is re-measured at each reporting date. Any movements in fair value are taken to the consolidated income statement. 1.17.3 Impairment of Financial Assets Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. Objective evidence of impairment could include: • significant financial difficulty of the issuer or counterparty; or • breach of contract, such as a default or delinquency in interest or principal payments; or • it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or • the disappearance of an active market for that financial asset because of financial difficulties. 1.18 Equity Equity comprises the following: 'Share capital' represents the nominal value of equity shares. 'Share premium' represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. 'Retained earnings' represents retained profits. ANNUAL REPORT 2014 34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2014