134 Annual Report 2021 3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (w) Financial instruments (Cont’d) (ii) Financial liabilities and equity instruments (Cont’d) Financial liabilities P ayables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, using the effective interest rate method where the time value of money is significant. Interest bearing bank loans, overdrafts and issued debt are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in the statements of profit or loss. T he effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or a shorter period, to the net carrying amount on initial recognition. Derecognition of financial liabilities T he Group and the Company derecognise financial liabilities when, and only when, the Group’s and the Company’s obligations are discharged, cancelled or they expire. The differences between the carrying amount of the financial liability derecognised and the consideration paid is recognised in the statements of profit or loss and other comprehensive income. (x) Cash and cash equivalents T he Group and the Company adopt the indirect method in the preparation of the statements of cash flows. Cash and cash equivalents are short-term and highly liquid investments and are readily convertible to cash with insignificant risk of changes in value. For the purpose of the statements of cash flows, cash and cash equivalents are presented net of bank overdrafts. (y) Provisions P rovisions are made when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount of the obligation can be made. Provisions are measured at the management’s best estimate of the amount required to settle the obligation at the reporting date and are discounted to present value where the effect is material. A t the reporting date, provisions are reviewed by the management and adjusted to reflect the current best estimate. Provisions are reversed if it is no longer probable that the Group will be required to settle the obligation. Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2021
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