AECON GROUP INC 39 Financial assets at fair value through proft or loss The Company may designate any fnancial asset as fair value through proft or loss on initial recognition with transaction costs recognized in proft or loss Financial assets are also classifed as fnancial assets at fair value through proft or loss if they are acquired for the purpose of selling in the near term Gains or losses on these items are recognized in proft or loss Derivatives that are fnancial assets are classifed as fnancial assets at fair value through proft or loss unless they are designated as and are effective hedging instruments Loans and receivables Loans and receivables including trade other receivables and longterm receivables with terms with more than one year are nonderivative fnancial assets with fxed or determinable payments that are not quoted in an active market do not qualify as trading assets and have not been designated as either fair value through proft and loss or availableforsale Such assets are carried at amortized cost using the effective interest rate method less any impairment losses with gains and losses recognized in proft and loss when the asset is derecognized or impaired Loans yielding interest at normal market rates are reported at face value while noninterest bearing loans and loans not at market rates are discounted to present value using a risk adjusted discount rate Heldtomaturity investments Nonderivative fnancial assets including shortterm deposits classifed as marketable securities with fxed or determinable payments and fxed maturities are classifed as heldtomaturity when the Company has the positive intention and ability to hold to maturity Investments intended to be held for an undefned period are not included in this classifcation Heldtomaturity investments are measured at amortized cost using the effective interest rate method less any impairment losses Impairment losses are recognized in proft and loss Availableforsale fnancial assets Availableforsale fnancial assets including equity shares classifed as marketable securities are those nonderivative fnancial assets that are designated as availableforsale or are not classifed in any of the other three stated categories After initial recognition availableforsale fnancial assets are measured at fair value with unrealized gains or losses recognized in other comprehensive income OCI until the asset is derecognized or impaired at which time the cumulative gain or loss previously reported in other comprehensive income is included in proft or loss Financial liabilities The Company determines the classifcation of its fnancial liabilities at initial recognition Financial liabilities are recognized initially at fair value For trade and other payables bank overdrafts loans and borrowings and fnancial guarantee contracts directly attributable transaction costs are applied against the balance of the liability For derivative fnancial instruments transaction costs are expensed in proft and loss After initial recognition interest bearing loans and borrowings and where necessary trade payables are subsequently measured at amortized cost using the effective interest rate method Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate method Amortization arising from the use of the effective interest rate method is included in fnance costs in the consolidated statements of income Convertible debentures Convertible debentures that allow for cash settlement on conversion are accounted for as a compound fnancial instrument with a debt component and a separate derivative component representing the fair value of the conversion option Both the debt and embedded derivative components of these compound fnancial instruments are measured at fair value on initial recognition The debt component is subsequently measured at amortized cost using the effective interest rate method Interest expense based on the coupon rate of the debenture and the accretion of the liability component to the amount that will be payable on redemption are recognized through proft and loss as fnance costs The embedded derivative is subsequently measured at fair value at each reporting date with gains or losses in fair value recognized through proft or loss Hedging To qualify for hedge accounting the Company must formally designate and document a hedge relationship between a qualifying hedging instrument and a qualifying hedged item at the inception of the hedge The Company assesses the effectiveness of the designated hedging relationships both at inception and on an ongoing basis to demonstrate the effectiveness of the hedge Fair value hedge Changes of the hedging derivative are recognized in the consolidated statement of income together with any changes in the fair value of the hedged items that are attributable to the hedged risk Cash fow hedgehedge of a net investment in a foreign operation The effective portion of the change in the fair value of the hedging derivative is recognized in OCI while the ineffective portion is recognized in net income When hedge accounting is discontinued amounts previously recognized in Accumulated Other Comprehensive Income AOCI are reclassifed to net income during the periods when the variability in the cash fows of the hedged item affects net income Gains and losses on derivatives are reclassifed immediately to net income when the hedged item is sold or terminated early 45 DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES Financial assets A fnancial asset is derecognized when the contractual rights to the cash fows from the asset expire or when the Company transfers the fnancial asset to another party without retaining control or substantially all the risks and rewards of ownership of the asset Any interest in transferred fnancial assets that is created or retained by the Company is recognized as a separate asset or liability Financial liabilities A fnancial liability is derecognized when the obligation under the liability is discharged or cancelled or expires Where an existing fnancial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are