The subsequent measurement of financial liabilities depends on their classification, as described below: Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon  initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near-term. This category  also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge  relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as  effective hedging instruments. Gains or losses on liabilities held for trading are recognized in the statement of income. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition,  and only if the criteria in IAS 39 are satisfied. The Company has not designated any financial liability upon initial recognition as at fair value  through profit or loss. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains  and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the  EIR. The EIR amortization is included as finance costs in the statement of income. This category generally applies to interest-bearing loans and borrowings. For more information refer  notes 12 and 13 . A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires. When an existing  financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are  substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a  new liability. The difference in the respective carrying amounts is recognized in the statement of income. All derivative instruments, including embedded derivatives that are not closely related to the host contract, are recorded in the statement of  financial position at fair value, on the date a contract is entered into and are subsequently re-measured at their fair value. The method of  recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and the nature of the hedge  designation. The Company designates certain derivatives as either: These are hedges of the fair value of recognized assets, liabilities or a firm commitment. Changes in the fair value of derivatives that are  designated as fair value hedges are recorded in the statement of income together with any changes in the fair value of the hedged asset or  liability that is attributable to the hedged risk. These are hedges of highly probable forecasted transactions. The effective portion of changes in the fair value of derivatives that are  designated as cash flow hedges are recognized as OCI. The gain or loss relating to the ineffective portion is recognized immediately in the  statement of income. Additionally: The Company uses forward currency contracts as hedges of its exposure to the foreign currency risk for the purchase of raw materials. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company  wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes  identification of the hedge instrument, the hedged item of the transaction, the nature of the risk being hedged, and how the entity will  assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair  value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair  value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the  financial reporting periods for which they were designated. ANNUAL REPORT 2013 69 • When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in OCI is immediately  recognized in the statement of income. • When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or  loss in equity remains in equity and is recognized when the forecast transaction is ultimately recognized in the statement of income; and • Amounts accumulated in OCI are recycled to the statement of income in the period when the hedged item affects profit and loss; (i) Financial liabilities at fair value through profit or loss (ii) Loans and borrowings Derecognition of financial liabilities Derivative instruments/hedging (i) Fair value hedges (ii) Cash flow hedges