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Accounting Policies

(continued)

RCS GROUP CONSOLIDATED FINANCIAL STATEMENTS

2015

18

for the period ended 31 December 2015

1.6 Financial Instruments (continued)

Non-derivative financial instruments

Non-derivativefinancialinstrumentsrecognisedonthestatement

of financial position include cashand cashequivalents, card, loan

andother receivables, funding, amounts owing fromand togroup

companies and trade and other payables.

Initial measurement

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

initial measurement.

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.

Other receivables

Otherreceivablesarecarriedatamortisedcostusingtheeffective

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

counterparties.

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