Page 101 - Sundance Resources 2014 Annual Report

SUNDANCE RESOURCES LIMITED ANNUAL REPORT 2014 99
l) Financial liabilities and equity instruments issued by the Group
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
Compound instruments
The component parts of compound instruments (convertible bonds) issued by the Group are classified separately as
financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a
financial liability and an equity instrument. Conversion options that will be settled by the exchange of a fixed amount of cash
or another financial asset for a fixed number of the Company’s own equity instruments is an equity instrument.
At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar
non-convertible instruments. This amount is recognised as a liability on an amortised cost basis using the effective interest
method until extinguished upon conversion or at the instrument’s maturity date.
The conversion option classified as equity 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, net of income tax effects, and is
not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion
option is exercised, in which case, the balance recognised in equity will be transferred to the ‘issue of convertible notes’
reserve account. Where the conversion option remains unexercised at the maturity date of the convertible note, the
balance recognised in equity will be transferred to accumulated losses. No gain or loss is recognised in profit or loss upon
conversion or expiration of the conversion option.
Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in
proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognised
directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability
component and are amortised over the lives of the convertible notes using the effective interest method.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest
expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost
of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a
shorter period, to the net carrying amount on initial recognition.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
NOTES TO THE
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014