56 TE PŪRONGO 2013
• fair value through surplus or deficit;
• loans and receivables; and
• fair value through other comprehensive income.
Classification of the financial asset depends on the purpose
for which the instruments were acquired.
Financial assets at fair value through surplus or deficit
Financial assets at fair value through surplus or deficit
include financial assets held for trading. A financial asset
is classified in this category if acquired principally for the
purpose of selling in the short-term or is part of a portfolio
that are managed together and for which there is evidence of
short-term profit-taking.
Derivatives are also categorised as held for trading.
Financial assets acquired principally for the purpose of
selling in the short-term or part of a portfolio classified as
held for trading are classified as a current asset.
After initial recognition, financial assets in this category
are measured at their fair values with gains or losses on
remeasurement recognised in the surplus or deficit.
Loans and receivables (including cash and cash equivalents
and tauira and other receivables)
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market. They are included in current assets, except
for maturities greater than 12 months after the balance date,
which are included in non-current assets.
After initial recognition, loans and receivables are measured
at amortised cost using the effective interest method less any
provision for impairment.
Gains and losses when the asset is impaired or derecognised
are recognised in the surplus or deficit.
Financial assets at fair value through other comprehensive
income
Financial assets at fair value through other comprehensive
income are those that are designated as fair value through
other comprehensive income or are not classified in any of
the other categories above. They are included in non-current
assets unless management intends to realise the investment
within 12 months of balance date. The organisation and
group designates in this category:
• investments that it intends to hold long-term but which
may be realised before maturity; and
• shareholdings that it holds for strategic purposes.
After initial recognition, these investments are measured
at their fair value, with gains and losses recognised in other
comprehensive income, except for impairment losses, which
are recognised in the surplus or deficit.
On derecognition, the cumulative gain or loss previously
recognised in other comprehensive income is reclassified
from equity to the surplus or deficit.
Impairment of financial assets
At each balance date, Te Wānanga o Aotearoa assesses
whether there is any objective evidence that a financial
asset or group of financial assets is impaired. Any impairment
losses are recognised in the surplus or deficit.
Loans and receivables (including cash and cash equivalents
and tauira and other receivables)
Impairment of a loan or a receivable is established when
there is objective evidence that Te Wānanga o Aotearoa will
not be able to collect amounts due according to the original
terms of the loan or receivable. Significant financial
difficulties of the debtor, probability that the debtor will
enter into bankruptcy, receivership, or liquidation, and
default in payments are considered indicators that the asset
is impaired. The amount of the impairment is the difference
between the asset’s carrying amount and the present value
of estimated future cash flows, discounted using the original
effective interest rate. For tauira and other receivables, the
carrying amount of the asset is reduced through the use of an
allowance account, and the amount of the loss is recognised
in the surplus or deficit. When the receivable is uncollectible,
it is written off against the allowance account.
Overdue receivables that have been renegotiated are
reclassified as current (that is, not past due). For other financial
assets, impairment losses are recognised directly against the
instrument’s carrying amount.
Financial assets at fair value through other comprehensive
income
For equity investments, a significant or prolonged decline in
the fair value of the investment below its cost is considered
objective evidence of impairment.
For debt investments, significant financial difficulties of the
debtor, probability that the debtor will enter into receivership
or liquidation, and default in payments are considered
objective indicators that the asset is impaired.
If impairment evidence exists for investments at fair value
through other comprehensive income, the cumulative loss
(measured as the difference between the acquisition cost
and the current fair value, less any impairment loss on that
financial asset previously recognised in the surplus or deficit)
recognised in other comprehensive income is reclassified
from equity to the surplus or deficit.
Equity instrument impairment losses recognised in the
surplus or deficit are not reversed through the surplus or
deficit.
If in a subsequent period the fair value of a debt instrument
increases and the increase can be objectively related to an
event occurring after the impairment loss was recognised, the
impairment loss is reversed in the surplus or deficit.
7. Inventories
Inventories held for distribution or consumption in the
provision of services that are not issued on a commercial
basis are measured at the lower of cost and net realisable
value. Where inventories are acquired at no cost or for
nominal consideration, the cost is the current replacement
cost at the date of acquisition.
The replacement cost of the economic benefits or service
potential of inventory held for distribution reflects any
obsolescence or any other impairment.
The cost of purchased inventory is determined as follows:
• inventories held for resale – purchase cost is on a
weighted average cost
Notes to the financial statements (continued)
