Income and expenses arising from a transaction that does not involve only the raising of finance might be classified in more than one category.
For example, the purchase of services in a transaction denominated in a foreign currency and negotiated on extended credit terms could give rise to an expense for the purchase of the services classified in the operating category, and interest expenses classified in the financing category.
In this situation, you should use judgement to determine whether the FX difference mainly relates to the amount classified in the financing category – and fully classify it in that category – or whether it mainly relates to the amount classified in operating category – and fully classify it in the operating category. No allocation of the FX difference between categories is permitted in this situation.
Refer to paragraphs B65–B69 of NZ IFRS 18 for further detail.
Gains and losses on derivatives and designated hedging instruments
Entities may use derivatives and other financial instruments to help manage risks as part of their activities (for example, interest rate risks or foreign currency risks). While these financial instruments are accounted for under NZ IFRS 9 Financial Instruments, the measurement of these instruments will often result in gains and losses recognised in the statement of profit or loss.
Applying the general NZ IFRS 18 classification requirements to these financial instruments might not provide useful information to users of financial statements, as these transactions are often used by entities for specific risks, and not generally for operations.
NZ IFRS 18 paragraphs B70–B76 therefore sets out specific classification requirements for these items. The table below, distinguishing between derivatives and other financial instruments, sets out a summary of these requirements.