Page 292 - SAMRC AnnualReport 2025-26

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

1.9 Financial instruments – GRAP 104 (Previous policy applied in
comparative period) (continued)

The effective interest method is a method of calculating the amortised cost of a financial asset or a
financial liability (or group of financial assets or financial liabilities) and of allocating the interest income
or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When
calculating the effective interest rate, an entity shall estimate cash flows considering all contractual terms
of the financial instrument (for example, prepayment, call and similar options) but shall not consider
future credit losses. The calculation includes all fees and amounts 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).

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:
• cash;
• a contractual right to:
– receive cash or another financial asset from another entity; or
– exchange financial assets or financial liabilities with another entity under conditions that are
potentially favourable to the entity.

A financial liability is any liability that is a contractual obligation to:

• deliver cash or another financial asset to another entity; or
• exchange financial assets or financial liabilities under conditions that are potentially unfavourable to
the entity.

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates.

Liquidity risk is the risk encountered by an entity in the event of difficulty in meeting obligations associated
with financial liabilities that are settled by delivering cash or another financial asset.

Loan commitment is a firm commitment to provide credit under pre-specified terms and conditions.
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and
other price risk.

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market prices (other than those arising from interest rate risk or currency risk),
whether those changes are caused by factors specific to the individual financial instrument or its issuer,
or factors affecting all similar financial instruments traded in the market.

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