NOTES
Consolidated financial statements •91
SECTION 4: CAPITAL STRUCTURE AND NET FINANCIALS, CONTINUED
FINANCIAL INSTRUMENTS
4.5
Carrying
Hedge
DKKmillion
Assets
Liabilities
amount
reserve
2014
Commodities
9
-133
-124
-122
Foreign exchange
90
-135
-45
-34
Total financial instruments
99
-268
-169
-156
2013
Commodities
-
-127
-127
-127
Foreign exchange
-
-21
-21
-16
Total financial instruments
-
-148
-148
-143
Financial assets and liabilities aremeasured at cost with the
exception of financial instruments (forward contracts etc.),
which aremeasured at fair value.
PANDORA uses a number of financial instruments to
hedge its exposure to fluctuations in commodity prices,
Classification according to the fair value hierarchy
The fair value at 31December 2014 and2013of
PANDORA’s financial instrumentswasmeasured in
accordancewith level 2 in the fair valuehierarchy (IFRS7).
Level 2 is basedonnon-quotedprices, observable either
directly (i.e. as prices) or indirectly (i.e. derived fromprices).
PANDORAuses third-party valuation specialists toquote
prices for theunrealisedfinancial instruments.The value
of unrealised silver and gold instruments are tested against
theprices observable at LBMA (LondonBullionMarket
Association).The valueof unrealised foreign exchange
instruments are tested against observable foreign exchange
forward rates.
Accounting policies
Financial instruments are initially recognised at fair
value at thedateonwhich a contract is entered into and
are subsequentlymeasured at fair value. For financial
instruments not traded in an activemarket, the fair value
is determinedusing appropriate valuationmethods. Such
methodsmay include comparisonwith recent arm’s length
market transactions, reference to the current fair value
of another instrument that is substantially the sameor
discounted cashflow analysis.
exchange rates and interest rates. Financial instruments
include forward commodity contracts, forward currency
contracts and interest rate swaps.
PANDORA has designated certainfinancial instruments
as cash flow hedges as definedunder IAS 39. Hedge
accounting is classified as cashflow hedgewhenhedging
variability in cashflow is attributable to a highly probable
forecast transaction. PANDORAuses a range of 80% to
125% for hedge effectiveness and any relationshipwhich
has effectiveness outside this range is deemed to be
ineffective andhedge accounting is suspended. PANDORA
designates and documents all hedging relationships
between commodity contracts and transactions.
Financial instruments that qualify for cash
flowhedge accounting
The effective portionof the unrealised gainor loss on
all hedging instruments is recognised directly as other
comprehensive income in the equity hedging reserve.The
ineffective portion is recognised innet financials.
The effective part of the realised gain or loss on a com-
modity hedging transaction is recognised inGroup invento-
rieswhereas the ineffective part is realised in net financials.
The realised gain or loss on all forward exchange contracts
is recognised in net financials.
