NOTES TO FINANCIAL STATEMENTS
December 31, 2015
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Convertible notes
Convertible notes are regarded as compound instruments, consisting of a liability component and an equity
component. The components of compound instruments are classified separately as financial liabilities and equity
in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability
component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This
amount is recorded as a liability on an amortised cost basis until extinguished upon conversion or at the instrument’s
maturity date. The equity component is determined by deducting the amount of the liability component from the
fair value of the compound instrument as a whole. This is recognised and included in equity reserve, net of income
tax effects, and is not subsequently remeasured.
The equity component, representing the option to convert the liability component into ordinary shares of the
Company, will remain in equity reserve until the embedded option is exercised in which case the balance stated in
equity reserve will be transferred to share capital. When the conversion option remains unexercised at the expiry
date or the maturity date of the convertible notes, the balance recognised in equity will be transferred to accumulated
profits. No gain or loss is recognised in profit or loss upon conversion or expiry of the option.
Derivative financial instruments and hedge accounting
The Group enters into derivative financial instruments to manage its exposure to foreign exchange rate risk. Further
details of derivative financial instruments are disclosed in Note 16 to the financial statements.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently
remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or
loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing
of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain
derivatives as hedges of foreign currency risk of firm commitments (cash flow hedges).
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument
is more than 12 months and it is not expected to be realised or settled within 12 months.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when
their risks and characteristics are not closely related to those of the host contracts and the host contracts are not
measured at fair value with changes in fair value recognised in profit or loss.
An embedded derivative is presented as a non-current asset or a non-current liability if the remaining maturity
of the hybrid instrument to which the embedded derivative relates is more than 12 months and it is not expected
to be realised or settled within 12 months. Other embedded derivatives are presented as current assets or current
liabilities.
YANLORD LAND GROUP LIMITED
ANNUAL REPORT 2015
74
