| 3.11 | Financial instruments |
Recognition, initial measurement and derecognition
Financial assets and liabilities are recognized when Grupo TMM is party to the contractual provisions of a financial instrument and are initially measured at fair value adjusted for the transaction costs, except for the financial assets and liabilities that are measured at their fair value through profit or loss, which are initially measured at fair value.
Financial assets are derecognised when the contractual rights to the cash flow from a financial asset expire, or when the financial asset and all the substantial risks and benefits have been transferred. A financial liability is derecognized as extinguished, discharged, canceled, or expired. Financial assets and liabilities are subsequently measured as described following.
Classification and subsequent measurement of financial assets
For the purposes of subsequent measurement, financial assets that are not those designated and effective as hedging instruments are classified into the following categories when they are initially recognized:
| · | financial assets at fair value through profit or loss; |
| · | held-to-maturity investments; |
| · | available-for-sale financial assets. |
Grupo TMM’s financial assets are classified into the category of loans and receivables, and available-for-sale financial assets. These financial assets are reviewed for impairment when there is objective evidence that the financial asset or group of financial assets has been impaired. Different criteria are applied to determine the impairment for each category of financial assets, as described following.
All income and expenses related to financial assets which are recognized in profit or loss are reported in the comprehensive financing cost, except for the impairment of the client accounts receivable, which are reported in ‘Other income’.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not traded on an active market. After the initial recognition, these are measured at amortized cost using the effective interest method, less the provision for impairment. The discount is omitted when the effect of the discount is immaterial. The cash and cash equivalents of Grupo TMM, and also the trade receivables, and most of the other accounts receivable fall under this category of financial instruments.
Individually significant accounts receivable are considered for impairment when these are in arrears or when there is objective evidence that a specific payment will fall into default.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are assigned to this category or do not qualify to be included in any of the other categories of financial assets.
Available-for-sale financial assets are measured at fair value. The gains and losses are recognized in other comprehensive income and are reported in other components of equity, except for impairment losses and currency differences in monetary assets, which are recognized in profit or loss. When an asset is disposed of or it is determined to be impaired, the cumulative gain or loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss and is presented as an adjustment for reclassification in other comprehensive income.
The reversion of impairment losses is recognized in other comprehensive income, except financial assets that are financial debt, which are only recognized in operations if the reversion can be objectively related to an event that occurs after the impairment loss has been recognized.
Classification and subsequent measuring of financial liabilities
The financial liabilities of Grupo TMM include financial debt, vendors, and other accounts payable. Financial liabilities are subsequently measured at amortized cost using the effective interest method.
All derivative financial instruments that are not designated and are not effective as hedging instruments are carried at fair value through profit or loss. All interest-related charges are recognized in operations and included in the item ‘Interest expense and other financial costs’ in the consolidated statement of profit or loss.
Compound financial instruments
The Company evaluates the issue of a non-derivative financial instrument to determine if it contains liability and equity components. These components are classified separately as financial liabilities or equity instruments at the time they are initially recognized, in conformity with the economic essence of the contractual agreement and with the definitions of financial liability and equity instrument.
The Company evaluates those conditions and identifies the financial liability component when there is a contractual agreement to deliver cash or another financial asset and an equity instrument component when the holder is entitled to convert it into a pre-established number of common shares of the Company.
The initial measurement of a compound financial instrument is distributed among its liability and equity components. The residual amount that is obtained after deducting the amount that has been determined separately for the liability component is allocated to the equity component from the overall fair value of the instrument. Losses or gains may not emerge in the initial recognition process of the components of the instrument.
The transaction costs of an equity transaction will be treated as a deduction thereof for accounting purposes. The liability component will be considered as transaction costs, in terms of the recognition of financial liabilities.
Interest relative to a component that is a financial liability will be recognized in income for the period. The equity instrument component are allocated directly to equity.
