NOTES TO CONSOLIDATED FINANCIAL STATEMENTS attributable to issuing them, and then at amortized cost using the effective interest method. We estimate fair values at a specific point in time, based on relevant market information and information about the financial instruments. Our estimates are subjective and involve uncertainties and significant judgment. Changes in assumptions could significantly affect the estimates. We measure financial instruments by grouping them into classes on initial recognition, based on the purpose of the individual instruments. We classify all of our non-derivative financial assets as either available- for-sale or loans and receivables. We classify non-derivative financial liabilities as other financial liabilities. Fair Value Classification and Measurement GLYPH<129> Available-for-sale financial assets – include our publicly traded and private investments. We initially measure these assets at fair value plus transaction costs directly attributable to acquiring them, and record them on the consolidated statements of financial position. We record subsequent changes in their fair value, other than impairment losses, in other comprehensive income. When we dispose of the assets, we reclassify the cumulative change in fair value recorded in the available-for-sale financial assets reserve to net income. GLYPH<129> Loans and receivables – includes accounts receivable. We initially measure these assets at fair value plus transaction costs directly attributable to acquiring them, and then at amortized cost using the effective interest method, recording changes through net income. GLYPH<129> Other financial liabilities – includes short-term borrowings, accounts payable and accrued liabilities, and long-term debt. We initially measure these liabilities at fair value plus transaction costs directly Current and Non-Current Classification We classify financial assets and financial liabilities as non-current when they are due in part or in whole more than one year from the date of the consolidated statements of financial position. All other financial assets and liabilities, including the portion of long-term liabilities due within one year from the date of the consolidated statements of financial position, are classified as current liabilities. We offset financial assets and financial liabilities and present the net amount in the consolidated statements of financial position when we have a legal right to offset them and intend to settle on a net basis or realize the asset and liability simultaneously. Offsetting Financial Assets and Liabilities Derivative Instruments We use derivative instruments to manage risks related to certain activities we are involved with. They include: The risk they manage Types of derivative instruments Debt Derivatives GLYPH<129> Impact of fluctuations in foreign exchange rates on principal and interest payments for US denominated long-term debt GLYPH<129> Cross-currency interest rate exchange agreements GLYPH<129> Forward foreign exchange agreements (from time to time as necessary) Expenditure Derivatives GLYPH<129> Impact of fluctuations in foreign exchange rates on forecasted US dollar denominated expenditures GLYPH<129> Forward foreign exchange agreements Equity Derivatives GLYPH<129> Impact of fluctuations in share price on stock-based compensation expense GLYPH<129> Total return swap agreements We assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when we first become a party to the contract. We use derivatives only to manage risk, and not for speculative purposes. We record all derivatives on our consolidated statements of financial position at their estimated fair value. We record changes in the estimated fair value of derivative instruments that are effective accounting hedges in other comprehensive income until the hedged item impacts net income. Hedge ineffectiveness is recognized in net income immediately. Any changes in the estimated fair value of derivative instruments that have not been designated as hedging instruments for accounting purposes are recognized immediately in net income. We calculate basic earnings per share by dividing the net income or loss attributable to our Class A and B shareholders by the weighted average number of Class A and B shares outstanding during the year. We calculate diluted earnings per share by adjusting the net income or loss attributable to Class A and B shareholders and the weighted average number of Class A and B shares outstanding for the effect of all dilutive potential common shares. We use the treasury stock method for calculating diluted earnings per share, which considers the impact of employee stock options and other potentially dilutive instruments. When we designate a derivative instrument as a hedging instrument for accounting purposes, we: See note 10 for our calculations of basic and diluted net income per share. We measure inventories, including handsets, digital cable equipment and merchandise for resale, at the lower of cost (determined on a first- in, first-out basis) and its net realizable value. We will reverse a previous write down to net realizable value if the inventories later increase in value. effectiveness of the hedging relationship. We assess quarterly whether the hedging instrument continues to be highly effective in offsetting the changes in the fair value or cash flows of the item it is hedging. GLYPH<129> formally document the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy, and the methods we will use to assess the ongoing GLYPH<129> first determine that the hedging instrument will be highly effective in offsetting the changes in fair value or cash flows of the item it is hedging, and Earnings Per S hare Inventories 2013 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 97