Financial instruments
Current financial assets
Cash and cash equivalents include cash on hand, demand deposits, as well as financial assets originally due within 90 days, readily convertible to known amount of cash and subject to an insignificant risk of changes in value.
Available-for-sale financial assets include financial assets other than derivative financial instruments, loans and receivables, held for trading financial assets and held-to-maturity financial assets.
Held-for-trading financial assets and available-for-sale financial assets are measured at fair value with gains or losses recognized in the line item of the profit and loss account “Finance income (expense)” and in the equity reserve14 related to other comprehensive income, respectively. Changes in fair value of available-for-sale financial assets recognized in equity are charged to the profit and loss account when the assets are derecognized or impaired. The objective evidence that an impairment loss has occurred is verified considering, inter alia, significant breaches of contracts, serious financial difficulties or the risk of bankruptcy and other financial reorganization of the counterparty; impairment losses of available-for-sale financial assets are included in the carrying amount.
Interests and dividends on financial assets measured at fair value are accounted for on an accrual basis in “Finance income (expense)”15 and “Other gain (loss) from investments”, respectively. When the purchase or sale of a financial asset is under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned, the transaction is accounted for on the settlement date.
Receivables are measured at amortized cost (see the accounting policy for “Non-current financial assets”).
Non-current financial assets
Investments
Investments in equity instruments16 are measured at fair value, with gains or losses recognized in the equity reserve related to other comprehensive income; the amounts recognized in equity are reclassified to the profit and loss account when the investment is impaired or derecognized.
When investments do not have a quoted price in an active market and their fair value cannot be reliably measured, they are measured at cost, net of any impairment losses; impairment losses shall not be reversed17.
Receivables and held-to-maturity financial assets
Receivables and held-to-maturity financial assets are accounted for at cost, that is the fair value of the initial consideration plus directly attributable transaction costs (e.g. fees, transaction costs, etc.). The initial carrying amount is then adjusted to take into account principal repayments, plus or minus the cumulative amortization of any difference between the initial amount and the maturity amount and minus any reductions for impairment or uncollectibility. Amortization is carried out on the basis of the effective interest rate represented by the rate that equalizes, at the moment of the initial recognition, the present value of expected cash flows to the initial carrying amount (so-called “amortized cost method”). Receivables for finance leases are recognized at an amount equal to the present value of the lease payments and the purchase option price or any residual value; the amount is discounted at the interest rate implicit in the lease.
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| (14) | Changes in the carrying amount of available-for-sale financial assets relating to changes in foreign exchange rates are recognized in the profit and loss account. |
| (15) | Interests accrued on held for trading financial assets impact the total fair value measurement of the instrument and are recognized, within the line item “Finance income (expense)”, in the sub-item “Net finance income on financial assets held for trading”. Conversely, interests accrued on financial assets available-for-sale are recognized, within the line item “Finance income (expense)”, in the sub-item “Finance income”. |
| (16) | For investments in joint ventures and associates, see “The equity method of accounting”. |
| (17) | Impairment losses recognized in an interim period are not reversed also when, considering conditions existing in a subsequent interim period, they would have been recognized in a smaller amount or would not have been recognized. |
If there is objective evidence that an impairment loss has been incurred (see also the accounting policy for “Current financial assets”), the impairment loss is measured as the difference between the carrying amount and the present value of the expected cash flows discounted at the effective interest rate computed at initial recognition, or at the moment of its updating to reflect re-pricings contractually established. Receivables and held-to-maturity financial assets are presented net of the allowance for impairment losses; when the impairment loss is definite, the allowance for impairment losses is reversed for charges, otherwise for excess. Changes to the carrying amount of receivables or financial assets in accordance with the amortized cost method are recognized as “Finance income (expense)”.
Financial liabilities
Financial liabilities, other than derivative financial instruments, are recognized initially at the fair value of the consideration received less the directly attributable transaction costs, and are subsequently measured at amortized cost (see above the accounting policy for “Non-current financial assets”).