Financial instruments  Recognition and measurement Classification 40 AKITA DRILLING LTD.  ANNUAL REPORT The Company’s financial assets and liabilities include cash, term deposits, restricted cash, accounts receivable,  accounts payable and accrued liabilities, and financial instruments. Due to the short-term nature of the  Company’s financial instruments, fair values approximate carrying values unless otherwise stated. At initial recognition, the Company classifies its financial instruments in the following categories depending on  the purpose for which the instruments were acquired: The Company’s loans and receivables are comprised of cash, term deposits, restricted cash and  trade receivables.  The Company’s financial assets at fair value through profit or loss consist of unrealized gains on  forward exchange contracts. The Company’s financial liabilities at amortized cost include accounts payable and accrued  liabilities. The Company’s financial liabilities at fair value through profit or loss are comprised of unrealized  losses on forward exchange contracts and financial guarantee contracts. (iv) Financial liabilities at fair value through profit or loss: Financial liabilities at fair value through  profit or loss are classified as current liabilities if payment is due within twelve months. Otherwise,  they are presented as non-current liabilities. (iii) Financial liabilities at amortized cost: Financial liabilities at amortized cost are classified as  current liabilities if payment is due within twelve months. Otherwise, they are presented as non- current liabilities. Accounts payable and accrued liabilities are initially recognized at the amount  required to be paid less, when material, a discount to reduce the payables and accrued liabilities  to fair value. Subsequently, accounts payable and accrued liabilities are measured at amortized  cost using the effective interest method.  (ii) Financial assets at fair value through profit or loss: 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 categorized as held  for trading unless they are designated as hedges. Assets in this category are classified as current  assets if expected to be settled within 12 months, otherwise they are classified as non-current. (i)  Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or  determinable payments that are not quoted in an active market. They are included in current  assets, except for maturities greater than 12 months after the end of the reporting period. These  are classified as non-current assets. Loans and receivables are initially recognized at the amount  expected to be received less, when material, a discount to reduce the loans and receivables to fair  value. Subsequently, loans and receivables are measured at amortized cost using the effective  interest method less a provision for impairment. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS