Eng - IOI Group

3 SIGNIFICANT ACCOUNTING POLICIES cont’d3.20 Financial Instruments cont’dvEquity instrumentsOrdinary shares are classified as equity. Dividends on ordinary shares are recognised as liabilities whendeclared.The transaction costs of an equity transaction are accounted for as a deduction from equity, net oftax. Equity transaction costs comprise only those incremental external costs directly attributable tothe equity transaction which would otherwise have been avoided.When issued shares of the Company are repurchased, the consideration paid, including anyattributable transaction costs is presented as a change in equity. Repurchased shares that have notbeen cancelled are classified as treasury shares and presented as a deduction from equity. No gain orloss is recognised in the income statement on the sale, re-issuance or cancellation of treasury shares.When treasury shares are reissued by resale, the difference between the sales consideration and thecarrying amount of the treasury shares is shown as a movement in equity.viDerivative financial instrumentsThe Group uses derivative financial instruments, including foreign exchange forward, interest rateswap and commodity future contracts, to hedge its exposure to foreign exchange, interest rate andcommodity price fluctuation arising from operational, financing and investment activities. Theseinstruments are not recognised in the financial statements on inception.Derivative financial instruments used for hedging purposes are accounted for on an equivalent basis asthe underlying assets, liabilities or net positions. Any profit or loss arising is recognised on the samebasis as that arising from the related assets, liabilities or net positions.Derivatives that are no longer designated as hedges are accounted for as trading instruments andmarked to market at balance sheet date. Any profit or loss is recognised in the income statement.3.21 Provisions and Contingent LiabilitiesA provision is recognised when it is probable that an outflow of resources embodying economic benefits willbe required to settle a present obligation (legal or constructive) as a result of a past event and a reliableestimate can be made of the amount.A contingent liability is disclosed, unless the possibility of an outflow of resources embodying economicbenefits is remote except for cases where the amount involved is material and the Directors are of theopinion that disclosure is appropriate.147IOI Corporation BerhadAnnual Report 2003