effective in offsetting changes in fair values or cash flows of  hedged items. Loans and receivables are non-derivative financial assets with  fixed or determinable payments that are not quoted in an active  market. They arise when the Group provides money, goods  or services directly to a debtor with no intention of selling the  receivable. They are included in current assets, except for those  with maturities greater than 12 months after the balance sheet  date which are classified as non-current assets. Changes in the fair value of derivatives that are designated  and qualify as fair value hedges are recorded in the income  statement, together with any changes in the fair value of the  hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting,  the adjustment to the carrying amount of a hedged item for  which the effective interest method is used is amortised to profit  and loss over the period of maturity. Financial assets at fair value through profit or loss are financial  assets held for trading. A financial asset is classified in this  category if acquired principally for the purpose of selling in the  short-term. Derivatives are also categorised as held for trading  unless they are designated as hedges. Assets in this category  are classified as current assets. Financial assets carried at fair value through profit or loss  are initially recognised at fair value, and transaction costs  are expensed in the income statement. Financial assets are  derecognised when the rights to receive cash flows from the  investments have expired or have been transferred and the  Group has transferred substantially all risks and rewards of  ownership. Loans and receivables are carried at amortised cost  using the effective interest method.  The effective portion of changes in the fair value of derivatives  that are designated and qualify as cash flow hedges is recognised  in equity in the hedging reserve. The gain or loss relating to the  ineffective portion is recognised immediately in the income  statement. Amounts accumulated in equity are recycled in the  income statement in the periods when the hedged item will  affect profit or loss (for instance when the forecast sale that is  hedged takes place). However, when the forecast transaction  that is hedged results in the recognition of a non-financial asset  (for example, inventory) or a non-financial liability, the gains and  losses previously deferred in equity are transferred from equity  and included in the measurement of the initial cost or carrying  amount of the asset or liability. Gains or losses arising from changes in the fair value of  ‘financial assets at fair value through profit or loss’ are  presented in the income statement, except for foreign exchange  movements on monetary assets, which are recognised in  the income statement within ‘finance costs – net’. Dividend  income from financial assets at fair value through profit or loss  is recognised in the income statement as part of other income  when the Group’s right to receive payments is established. The Group assesses at each balance sheet date whether there  is objective evidence that a financial asset or a group of financial  assets is impaired.  When a hedging instrument expires or is sold or terminated, or  when a hedge no longer meets the criteria for hedge accounting,  any cumulative gain or loss existing in equity at that time remains  in equity and is recognised when the forecast transaction is  ultimately recognised in the income statement. When a forecast  transaction is no longer expected to occur, the cumulative gain or  loss that was reported in equity is immediately transferred to the  income statement. Certain derivative instruments do not qualify for hedge  accounting or hedge accounting has not been adopted. Changes  in the fair value of these derivative instruments are recognised  immediately in the income statement within ‘finance costs – net’. Derivatives are initially recognised at fair value on the date a  derivative contract is entered into and are subsequently re- measured to their fair value. The method of recognising the  resulting gain or loss depends on whether the derivative is  designated as a hedging instrument, and if so, the nature of the  item being hedged. The Group designates certain derivatives  as either; (1) hedges of the fair value of recognised assets or  liabilities or a firm commitment (fair value hedge); or (2) hedges  of highly probable forecast transactions (cash flow hedges). The fair value of financial assets and financial liabilities must be  estimated for recognition and measurement or for disclosure  purposes. The fair value of financial instruments that are not traded in an  active market (for example, over-the-counter derivatives) is  determined using valuation techniques. The fair value of forward  exchange contracts is determined using forward exchange  market rates at the balance sheet date. Quoted market prices or dealer quotes for similar instruments are  used for long-term debt. Other techniques, such as estimated  The Group documents, at the inception of the transaction,  the relationship between hedging instruments and hedged  items, as well as its risk management objective and strategy  for undertaking various hedge transactions. The Group also  documents its assessment, both at hedge inception and on  an on-going basis, of whether the derivatives that are used in  hedging transactions have been and will continue to be highly  (iii) Derivatives that do not qualify for hedge accounting (O) FAIR VALUE ESTIMATION (N) DERIVATIVES (ii) Cash flow hedge (i) Fair value hedge (i) Loans and receivables (ii) Financial assets at fair value through profit or loss 38 ANNUAL REPORT  2013  KATHMANDU