3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
3.5 Financial instruments (continued)
(iii) Derivative financial instruments (continued)
Other non-trading derivatives
Changes in the fair value of the derivative hedging instruments that do not qualify for hedge accounting
are recognised immediately in the Statement of Total Return.
(iv) Convertible Sukuk
The Convertible Sukuk comprises a liability for the profit expense and principal amount and an embedded
derivative liability. The embedded derivative liability is recognised at fair value at inception. The carrying
amount of the Convertible Sukuk at initial recognition is the difference between the gross proceeds from
the Convertible Sukuk and the fair value of the embedded derivative liability. Any directly attributable
transaction costs are allocated to the debt component of the Convertible Sukuk and embedded
derivative liability in proportion to their initial carrying amounts.
Subsequent to initial recognition, the debt component of the Convertible Sukuk is measured at amortised
cost using the effective profit rate method. The embedded derivative liability is measured at fair value
through the Statement of Total Return.
3.6 Impairment
(i) Non-derivative financial assets
A financial asset not carried at fair value through Statement of Total Return is assessed at the end of
each reporting period to determine whether there is objective evidence that it is impaired. A financial
asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition
of the asset, and that the loss event has a negative effect on the estimated future cash flows of that asset
that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor,
restructuring of an amount due to the Group on terms that the Group would not consider otherwise,
indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of
borrowers or issuers in the Group, economic conditions that correlate with defaults or the disappearance
of an active market for a security. In addition, for an investment in an equity security, a significant or
prolonged decline in its fair value below its cost is objective evidence of impairment.
Loans and receivables
The Group considers evidence of impairment for loans and receivables at both a specific asset and
collective level. All individually significant loans and receivables are assessed for specific impairment.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the
difference between its carrying amount and the present value of the estimated future cash flows,
discounted at the asset’s original effective profit rate. Losses are recognised in the Statement of Total
Return and reflected in an allowance account against loans and receivables. Profit income on the
impaired asset continues to be recognised. When a subsequent event (e.g. repayment by a debtor)
causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through
the Statement of Total Return.
Year ended 31 December 2014
NOTES TO THE FINANCIAL STATEMENTS
SABANA REIT
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ANNUAL REPORT 2014
108
