PPS Integrated Report 2021 141 | Group Accounting Policies 3.3 Financial liabilities A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another entity. Financial liabilities include other payables, borrowings categorised as financial liabilities at amortised cost, investment contract liabilities (accounting policy note 4.2.3) and third-party financial liabilities arising on consolidation of unit trusts (accounting policy note 2), designated on initial recognition as at fair value through profit and loss. Other payables are initially measured at fair value less transaction costs that are directly attributable to the raising of the funds, and are subsequently stated at amortised cost using the effective interest rate method. Any difference between the proceeds, net of transaction costs and the redemption value is recognised in the Statement of Profit or Loss and other Comprehensive Income over the period of borrowing. Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Statement of Profit or Loss and other Comprehensive Income over the period of the borrowings using the effective interest method. Investment contract liabilities are initially measured at fair value less transaction costs and are subsequently measured at fair value. Third-party financial liabilities arising on consolidation of unit trusts are measured at fair value, which is the unquoted unit values as derived by the fund administrator, with reference to the rules of each particular fund. Fair value gains or losses are recognised in the Statement of Profit or Loss and other Comprehensive Income. 3.4 Derecognition of financial assets and financial liabilities The Group derecognises an asset: ~when the contractual rights to the cash flows from the asset expires; ~where there is a transfer of contractual rights to receive cash flows on the asset in a transaction in which substantially all the risks and rewards of ownership of the asset are transferred; or ~where the Group retains the contractual rights to the cash flows from these assets, but assumes a corresponding liability to transfer these contractual rights to another party and consequently transfers all or substantially all the risks and benefits associated with the assets. Where the Group retains substantially all the risks and rewards of ownership of the financial asset, the Group continues to recognise the asset. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. 3.5 Financial Instruments, owner-occupied property (accounting policy note 8) and insurance and investment contracts (accounting policy note 4) analysis IFRS 13 indicates a three tier hierarchy for fair value measurement disclosures: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. These are the readily available in the market and are normally obtainable from multiple sources. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Inputs for the asset or liability that is not based on observable market data (unobservable inputs).
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