CAPITAL POWER CORPORATION 2. Significant accounting policies, continued: Financial instruments at fair value through income or loss Loans and receivables Other financial liabilities 83 (h) Non-derivative financial instruments: (i) Derivative instruments and hedging activities: Notes to the Consolidated Financial Statements (Tabular amounts in millions of Canadian dollars, except share and per share amounts) Financial assets are identified and classified as either available for sale, held at fair value through income or loss, or loans and receivables. Financial liabilities are classified as either held at fair value through income or loss or other financial liabilities. A financial asset is classified as held at fair value through income or loss if it is classified as held for trading or is designated as such upon initial recognition. The Company may designate financial instruments as held at fair value through income or loss when such financial instruments have a reliably determinable fair value and where doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets and liabilities or recognizing gains and losses on them on a different basis. Upon initial recognition transaction costs are recognized into net income as incurred. Financial assets classified as held at fair value through income or loss are measured at fair value with the changes in fair value reported in net income. Fair values are determined in the manner described in note 29. Gains or losses realized on de-recognition of investments held at fair value through income or loss are recognized into net income. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. The Company’s current loans and receivables comprise its cash and cash equivalents and trade and other receivables. Non-current loans and other long-term receivables comprise promissory notes receivable and amounts due from customers more than one year from the date of the statement of financial position which will be repaid between 2013 and 2020. These assets are recognized initially at fair value plus any directly attributable transaction costs. After initial recognition they are measured at amortized cost using the effective interest method less any impairment losses as described in note 2(o). The effective interest method calculates the amortized cost of a financial asset or liability and allocates the interest income or expense over the term of the financial asset or liability using an effective interest rate. The Company’s loans and borrowings and trade and other payables are recognized on the date at which the Company becomes a party to the contractual arrangement. Liabilities are derecognized when the contractual obligations are discharged or cancelled or expire. Liabilities are recognized initially at fair value plus any directly attributable transaction costs, such as debenture discounts, premiums and issue expenses. Subsequently these liabilities are measured at amortized cost using the effective interest rate method. Financial assets and financial liabilities are presented on a net basis when the Company has a legally enforceable right to set-off the recognized amounts and intends to settle on a net basis or to realize the asset and settle the liability simultaneously. To reduce its exposure to movements in energy commodity prices, interest rate changes, and foreign currency exchange rates, the Company uses various risk management techniques including the use of derivative instruments. Derivative instruments may include forward contracts, fixed-for-floating swaps, and option contracts. Such instruments may be used to establish a fixed price for an energy commodity, an interest-bearing obligation or an obligation denominated in a foreign currency.