Statement of Accounting Policies (v) Grant Expenditure Derivative financial instruments fall into the “fair value through surplus or deficit” Non-discretionary grants are those grants that are awarded if the grant category. application meets the specified criteria and are recognised as expenditure when an application that meets the specified criteria for the grant has been Derivatives are initially recognised at fair value on the date a derivative contract received. Discretionary grants are those grants where the Council has no is entered into and are subsequently re-measured to their fair value. Derivative obligation to award on receipt of the grant application and are recognised as instruments entered into by MDC do not qualify for hedge accounting. expenditure when a successful applicant has been notified of the Council’s Changes in the fair value of any derivative financial instrument that does not decision. qualify for hedge accounting are recognised in the surplus or deficit. (vi) Leases (viii) Other Financial Assets Leases are classified as finance leases whenever the terms of the lease Financial assets are initially recognised at fair value plus transaction costs transfer substantially all the risks and rewards of ownership to the lessee. All unless they are carried at fair value through surplus or deficit in which case the other leases are classified as operating leases. transaction costs are recognised in the surplus or deficit. Purchases and sales of financial assets are recognised on trade-date, the date on which MDC Operating Leases commits to purchase or sell the asset. Financial assets are derecognised when Rental revenue from operating leases is recognised on a straight-line basis the rights to receive cash flows from the financial assets have expired or have over the term of the relevant lease. All operating lease contracts contain been transferred and MDC has transferred substantially all the risks and review clauses in the event that MDC exercises its option to renew. The lessee rewards of ownership. does not have an option to purchase the property at expiry of the lease period. Financial assets are classified into the following categories for the purpose of Rentals payable under operating leases are charged to revenue on a straight- measurement: line basis over the term of the relevant lease. • loans and receivables and investments in CCOs and similar (vii) Cash and Cash Equivalents entities; and Cash and cash equivalents comprise cash on hand, demand deposits, and Term deposits and bonds which are held-to-maturity other short-term highly liquid with original maturities of three months or less, • and bank overdrafts. Bank overdrafts are shown within borrowings in current investments; liabilities in the Statement of Financial Position. The classification of a financial asset depends on the purpose for which the instrument was acquired. Trade and other Receivables Short-term receivables are recorded at the amount due, less any provision for Loans and receivables uncollectability. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.They are A receivable is considered to be uncollectable when there is evidence that the included in current assets, except for maturities greater than 12 months after amount due will not be fully collected. The amount that is uncollectable is the the balance date, which are included in non-current assets. difference between the amount due and the present value of the amount expected to be collected. After initial recognition, they are measured at amortised cost, using the effective interest method, less impairment. Gains and losses when the asset is Derivative Financial Instruments and Hedge Accounting impaired or derecognised are recognised in the surplus or deficit. MDC enters into interest rate swaps to manage interest rate risk and, from time to time, foreign currency forward contracts to manage foreign currency rate Loans to community organisations made at nil or below-market interest rates fluctuation risk. The Council does not use derivative financial instruments for are initially recognised at the present value of their expected future cash flows, speculative purposes. discounted at the current market rate of return for a similar financial instrument. The loans are subsequently measured at amortised cost using the effective 2018-2028 Long Term Plan Page 242