RCS GROUP CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 31 December 2015
1.6 Financial Instruments (continued)
Non-derivative financial instruments
of financial position include cashand cashequivalents, card, loan
andother receivables, funding, amounts owing fromand togroup
companies and trade and other payables.
Financial instruments are initially recognised at fair value. For
those instruments not measured at fair value through profit
or loss, directly attributable transaction costs are included on
Subsequent to initial recognition, these instruments are
measured as set out below:
Cash and cash equivalents
Cash and cash equivalents comprises cash on hand and
amounts held on deposit at financial institutions. Cash is
measured at amortised cost less impairment losses by using
the effective interest method.
Card and loan receivables
Card and loan receivables are classified as loans and other
receivables and are measured at amortised cost using the
effective interest method, less accumulated impairment
losses. An impairment allowance is made for card and
loan receivables which are estimated to be impaired at the
reporting date. This impairment allowance is estimated as
discussed in note 1.4.
interest ratemethod less accumulated impairment losses.
Financial liabilities measured at amortised cost
Non-derivative financial liabilities including interest-bearing
funding and trade and other payables are recognised at
amortised cost comprising original debt less principal
repayments and amortisation.
Derivative financial instruments
The RCS Group uses derivative financial instruments to hedge
its exposure to interest rate risks arising from operational,
financing and investment activities. In accordance with
its treasury policy, the RCS Group does not hold or issue
derivative financial instruments for trading purposes.
Derivative financial instruments are subsequently measured
at fair value, with the gain or loss on remeasurement being
recognised immediately in the income statement. However,
where derivatives qualify for hedge accounting, recognition
of any gain or loss depends on the nature of the hedge (refer
to hedge accounting policy note).
The fair value of interest rate swaps is the estimated amount
that the RCS Group would receive or pay to terminate the
swap at the reporting date, taking into account current
interest rates and the current creditworthiness of the swap
Cashflow hedge accounting
Changes in the fair value of a derivative hedging instrument
designated as a fair value hedge are recognised in the income
statement. The hedged item is adjusted to reflect changes
in its fair value in respect of the risk being hedged; the gain
or loss attributable to the hedged risk is recognised in the
income statement with an adjustment to the carrying amount
of the hedged item.
To the extent that they are effective, gains and losses from
remeasuring the hedging instruments relating to a cash
flow hedge to fair value are initially recognised directly in
other comprehensive income and presented in the hedging
reserve in equity. If the hedged firm commitment or forecast
transaction results in the recognition of a non-financial
asset or liability, the cumulative amount recognised in other
comprehensive income up to the transaction date is adjusted
against the initial measurement of the asset or liability. For
other cash flow hedges, the cumulative amount recognised