The Edinburgh Investment Trust Plc Annual Financial Report 2022 - Flipbook - Page 61
THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 59
C. Financial Instruments
The Company has chosen to apply Section 11 and 12 of FRS102 in full in respect of the financial instruments.
(i) Recognition of financial assets and financial liabilities
The Company recognises financial assets and financial liabilities when the Company becomes a party to the contractual provisions of
the instrument. The Company will offset financial assets and financial liabilities if the Company has a legally enforceable right to set
off the recognised amounts and intends to settle on a net basis.
(ii) Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the
right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of
ownership of the financial asset are transferred. Any interest in the transferred financial asset that is created or retained by the
Company is recognised as an asset.
(iii) Derecognition of financial liabilities
The Company derecognises financial liabilities when its obligations are discharged, cancelled or have expired.
(iv) Trade date accounting
Purchases and sales of financial assets are recognised on trade date, being the date on which the Company commits to purchase or
sell the assets.
(v) Classification and measurement of financial assets and financial liabilities
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Financial assets
The Company’s investments are classified as held at fair value through profit or loss.
Financial assets held at fair value through profit or loss are initially recognized as fair value, which is taken to be their acquisition
price, with transaction costs expensed in the income statement. These are subsequently valued at fair value.
Fair value for investments that are actively traded in organised financial markets is determined by reference to stock exchange
quoted bid prices at the balance sheet date. Fair value for investments that are actively traded but where active stock exchange
quoted bid prices are not available is determined by reference to a variety of valuation techniques including broker quotes and
price modelling. Unquoted, unlisted or illiquid investments are valued by the Directors at fair value using a variety of valuation
techniques including earnings multiples, recent transactions and other market indicators, cash flows and net assets.
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Financial liabilities
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are subsequently
measured at amortised cost using the effective interest method.
D. Cash and Cash Equivalents
Cash and cash equivalents may comprise cash (including short term deposits which are readily convertible to a known amount of cash and
are subject to an insignificant risk of change in value) as well as cash equivalents, including money market funds. Investments are regarded as
cash equivalents if they meet all of the following criteria: short term in duration (typically three months or less from the date of acquisition),
highly liquid investments held in the Company’s base currency that are readily convertible to a known amount of cash, are subject to an
insignificant risk of change in value and provide a return no greater than the rate of a three-month high quality government bond.
E. Hedging
Forward currency contracts entered into for hedging purposes are valued at the appropriate forward exchange rate ruling at the balance
sheet date. Profits or losses on the closure or revaluation of positions are recognised in the income statement and taken to capital reserves.
F. Income
Interest income arising from fixed income securities and cash is recognised in the income statement using the effective interest method.
Dividend income arises from equity investments held and is recognised on the date investments are marked ‘ex-dividend’.
Special dividends are looked at individually to ascertain the reason behind the payment. This will determine whether they are treated as
income or capital in the income statement.
Deposit interest and underwriting commission receivable are taken into account on an accruals basis.