FFIINANNANCCIALIAL S STTAATTEEMMEENNTTSS NOTES TO THE FINANCIAL STATEMENTS CONTINUED S 2 ACCOUNTING POLICIES CONTINUED designated as hedging instruments in hedging relationships is detailed in TR Impairment of assets continued the hedge accounting policies. A financial asset or liability is derecognised A Where the carrying amount of an asset exceeds its recoverable amount, when the contract that gives rise to it is settled, sold, cancelled or expires. TE G I the asset is considered impaired and is written down to its recoverable C amount. In assessing value-in-use, the estimated future cash flows are Financial assets and liabilities R Financial assets are cash or a contractual right to receive cash or another E discounted to their present value using a pre-tax discount rate that P financial asset from another entity or to exchange financial assets or O reflects current market assessments of the time value of money and the R risks specific to the asset. Impairment losses on continuing operations are liabilities with another entity under conditions that are potentially T recognised in the Income Statement. favourable to the entity. In addition, contracts that result in another entity delivering a variable number of its own equity instruments are G For goodwill, brands and other intangible assets that have an indefinite financial assets. O life, the recoverable amount is estimated annually or more frequently VE when there is an indication that the asset is impaired. Derivative financial instruments, including equity options, are held at fair R value. All other financial instruments are held at amortised cost. NAN For intangible assets, property, plant and equipment, and right-of-use Trade and other receivables C lease assets that have a finite life, the recoverable amount is estimated Trade and other receivables are carried at the lower of their original E when there is an indication that the asset is impaired. invoiced value and recoverable amount. A trade receivable loss Where an impairment loss subsequently reverses, the carrying amount of allowance is measured at an amount equal to the lifetime expected credit F I the asset (or cash-generating unit) is increased to the revised estimate of loss at initial recognition and throughout the life of the receivable. NAN the recoverable amount, but such that the increased carrying amount Receivables are not discounted, as the time value of money is not C does not exceed the carrying amount that would have been determined considered to be material. IAL had no impairment loss been recognised for the asset in prior periods. Trade and other payables S A reversal of an impairment loss is recognised in the Income Statement T A Trade and other payables are recognised and carried at their original T as income immediately. E invoiced value. Trade payables are not discounted to consider the time M E Inventories value of money as the impact is immaterial. N T Inventories are stated at the lower of cost and net realisable value. For Refundable and non-refundable customer deposits are held as contract S service and restoration projects, net realisable value is the price at which liabilities within current trade and other payables. the project can be invoiced in the normal course of business after F allowing for the costs of completion. Inventory sale and repurchase arrangements, which are in substance U R financing transactions, are included in other payables. The difference T Cost includes all costs incurred in bringing each product to its present H between the sale and repurchase value is accounted for as part of the E location and condition, as follows: R effective interest calculation. The effective interest is charged to the INF – Raw materials, service parts and spare parts – purchase cost on a first- Income Statement over the period from sale to repayment. in, first-out basis. OR Hedge accounting M – Work in progress and finished vehicles – cost of direct materials and A The Group uses derivative financial instruments in the form of forward T labour plus attributable overheads based on a normalised level of I activity, excluding borrowing costs. currency contracts, and certain US dollar denominated borrowings, to ON hedge the foreign currency risk of sales (including inter-Group sales) Provisions are made, on a specific basis, for obsolete, slow-moving and of finished vehicles and external purchases of component parts. For the defective stocks and if the cost of the service or restoration project purpose of hedge accounting, hedges are classified as cash flow hedges cannot be fully recovered. Inventories held under financing arrangements when hedging the exposure to variability in cash flows either attributable are recognised when control is transferred to the Group. to a particular risk associated with a recognised asset or liability, or a Cash and cash equivalents highly probable forecast transaction, or the foreign currency risk of an Cash and cash equivalent in the Statement of Financial Position comprise: unrecognised firm commitment. – cash, being cash at banks and in hand as well as demand deposits. At the inception of the hedge relationship, the Group formally designates – cash equivalents, being short-term deposits with an original maturity and documents the hedge relationship and the risk management of three months or less, subject to insignificant changes in value, objectives and strategy for undertaking the hedge. The documentation which are readily convertible to known amounts and held to meet includes identification of the hedging instrument, the hedged item, the short-term commitments. nature of the risk being hedged and how the Group will assess hedge effectiveness. A hedging relationship qualifies for hedge accounting if Derivative financial instruments it meets all the following effectiveness requirements: Derivative financial assets and liabilities are recognised in the Statement – There is an economic relationship between the hedged item and the of Financial Position at fair value when the Group becomes a party to the hedging instrument. contractual provisions of the instrument. The Group uses derivative – The effect of credit risk does not dominate the value changes resulting instruments to manage its exposure to foreign exchange risk arising from from that economic relationship. operating activities. Movements in the fair value of foreign exchange – The theoretical hedge ratio of the hedging relationship is the same derivatives not qualifying for hedge accounting are recognised in finance as practically occurs. income or expense. The accounting policy on derivatives that are ASTON MARTIN LAGONDA ANNUAL REPORT AND ACCOUNTS 2023 152