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SEE HUP SENG LIMITED
Annual Report 2012
52
Notes to the Financial Statements
31 DECEMBER 2012
2 Significant Accounting Policies (Continued)
(l) Financial Guarantees
The Company has issued corporate guarantees to banks for bank borrowings of its subsidiaries. These
guarantees are financial guarantee contracts as they require the Company to reimburse the banks if the
subsidiaries fail to make principal or interest payments when due in accordance with the terms of their
borrowings.
Financial guarantee contracts are initially recognised at their fair value plus transaction costs and
subsequently at the higher of the amount recognised as a provision and the amount initially recognised
less cumulative amortisation.
(m) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs)
and the redemption value is taken to profit or loss over the terms of the borrowings using the effective
interest method.
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.
Borrowings which are due to be settled within 12 months after the balance sheet date are included in
current borrowings in the balance sheet even though the original term was for a year longer than 12
months and an agreement to refinance, or to reschedule payments, on a long-term basis is completed
after the balance sheet date and before the financial statements are authorised for issue. Other borrowings
due to be settled more than 12 months after the balance sheet date are included in non-current
borrowings in the balance sheet.
(n) Trade and Other Payables
Trade and other payables are initially measured at fair value, and subsequently measured at amortised
cost, using the effective interest method.
(o) Fair Value Estimation
The fair value of current financial assets and liabilities carried at amortised cost approximate their carrying
amount.
The fair values of financial instruments that are not traded in an active market are determined by using
valuation techniques. The Group uses a variety of methods and makes assumptions that are based on
market conditions existing at each balance sheet date. Where appropriate, quoted market prices or dealer
quotes for similar instruments are used. Valuation techniques, such as discounted cash flow analyses,
are also used to determine the fair values of the financial instruments.