267694 EdinburghIT AR 2024 WEB - Flipbook - Page 65
THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 63
(iii) Derecognition of financial liabilities
The Company derecognises financial liabilities when its obligations are discharged, cancelled or have expired.
(iv) Trade date accounting
Purchases and sales of financial assets are recognised on trade date, being the date on which the Company commits to
purchase or sell the assets.
(v) Classification and measurement of financial assets and financial liabilities
– Financial assets
The Company’s investments are classified as held at fair value through profit or loss.
Financial assets held at fair value through profit or loss are initially recognized as fair value, which is taken to be their
acquisition price, with transaction costs expensed in the income statement. These are subsequently valued at fair value.
Fair value for investments that are actively traded in organised financial markets is determined by reference to stock
exchange quoted bid prices at the balance sheet date. Fair value for investments that are actively traded but where
active stock exchange quoted bid prices are not available is determined by reference to a variety of valuation techniques
including broker quotes and price modelling. Unquoted, unlisted or illiquid investments are valued by the Directors at
fair value using a variety of valuation techniques including earnings multiples, recent transactions and other market
indicators, cash flows and net assets.
–
Financial liabilities
Financial liabilities, including borrowings, are initially measured at transaction price, being the fair value. For liabilities
issued at a discount or with significant associated transaction costs, such discount and costs are subsequently measured
at amortised cost using the effective interest method.
D. Cash and Cash Equivalents
Cash and cash equivalents may comprise cash (including short term deposits which are readily convertible to a known amount
of cash and are subject to an insignificant risk of change in value) as well as cash equivalents, including money market funds.
Investments are regarded as cash equivalents if they meet all of the following criteria: short term in duration (typically three
months or less from the date of acquisition), highly liquid investments that are readily convertible to a known amount of cash,
are subject to an insignificant risk of change in value and provide a return no greater than the rate of a three-month high quality
government bond.
E. Hedging
Forward currency contracts entered into for hedging purposes are valued at the appropriate forward exchange rate ruling at
the balance sheet date. Profits or losses on the closure or revaluation of positions are recognised in the income statement and
taken to capital reserves.
F. Income
Interest income arising from fixed income securities and cash is recognised in the income statement using the effective
interest method. Dividend income arises from equity investments held and is recognised on the date investments are marked
‘ex-dividend’. Special dividends are looked at individually to ascertain the reason behind the payment. This will determine
whether they are treated as income or capital in the income statement.
Deposit interest and underwriting commission receivable are taken into account on an accruals basis.
G. Expenses and Finance Costs
Expenses are recognised on an accruals basis and finance costs are recognised using the effective interest method in the
income statement.
The investment management fee and finance costs are allocated 70% to capital and 30% to revenue. This is in accordance
with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the portfolio.
Transaction costs are recognised as capital in the income statement. All other expenses are allocated to revenue in the income
statement.
H. Taxation
The liability to corporation tax is based on net revenue for the year, excluding non-taxable dividends. The tax charge is
allocated between the revenue and capital account on the marginal basis whereby revenue expenses are matched first against
taxable income in the revenue account.
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet
date where transactions or events that result in an obligation to pay more tax or a right to pay less tax in the future have
