Page 284 - SAMRC AnnualReport 2025-26

ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2026
SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

1.8 Financial instruments (continued)

Effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial asset or financial liability to the gross carrying amount of a
financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate,
an entity shall estimate the expected cash flows by considering all the contractual terms of the financial
instrument (for example, prepayment, extension, call and similar options) but shall not consider the
expected credit losses. The calculation includes all fees and points paid or received between parties
to the contract that are an integral part of the effective interest rate, transaction costs, and all other
premiums or discounts. There is a presumption that the cash flows and the expected life of a group
of similar financial instruments can be estimated reliably. However, in those rare cases when it is not
possible to reliably estimate the cash flows or the expected life of a financial instrument (or group of
financial instruments), the entity shall use the contractual cash flows over the full contractual term of the
financial instrument (or group of financial instruments).

Expected credit losses are the weighted average of credit losses with the respective risks of a default
occurring as the weights.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable willing parties in an arm’s length transaction.

A financial asset is:
(a) cash;

(b) a residual interest of another entity; or

(c) a contractual right to:
(i) receive cash or another financial asset from another entity; or

(ii) exchange financial assets or financial liabilities with another entity under conditions that are
potentially favourable to the entity.

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial
liability or a residual interest of another entity.

A financial liability is any liability that is a contractual obligation to:
(a) deliver cash or another financial asset to another entity; or

(b) exchange financial assets or financial liabilities with another entity under conditions that are potentially
unfavourable to the entity.

Financial liability at fair value through surplus or deficit is a financial liability that meets one of the
following conditions:

(a) It meets the definition of held for trading.
(b) Upon initial recognition it is designated by the entity as at fair value through surplus or deficit in
accordance with paragraph 4.8 or 4.13.

Firm commitment is a binding agreement for the exchange of a specified quantity of resources at a
specified price on a specified future date or dates.

Forecast transaction is an uncommitted but anticipated future transaction.

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