ITF

ITF Trust Annual Report and Financial Statements 2022 21 Lease payments to be made under reasonably certain extension op ons are also included in the measurement of the liability. The lease payments are discounted using the lessee's incremental borrowing rate, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and condi ons. To determine the incremental borrowing rate, the group uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by an ITF Trust subsidiary, which does not have a recent third-party financing. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost comprising: the amount of the ini al measurement of the lease liability; any lease payments made at or before the commencement date less any lease incen ves received; any ini al direct costs; and restora on costs. Right-of-use assets are depreciated over the lease term on a straight-line basis. Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture. n) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity date of three months or less. For the consolidated cash flow statement, cash and cash equivalents are net of outstanding bank overdra s. o) Deriva ve financial instruments and hedging The group uses deriva ve financial instruments such as forward currency contracts to hedge its risks associated with foreign currency fluctua ons. Such deriva ve financial instruments are ini ally recognised at fair value on the date at which a deriva ve contract is entered into and are subsequently restated at fair value. Deriva ves are carried as assets when the fair value is posi ve and as liabili es when the fair value is nega ve. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. For the purpose of hedge accoun ng, hedges u lised by the ITF are classified as cash flow hedges. Cash flow hedges are when hedging exposure to variability in cash flows that is either a ributable to a par cular risk associated with a recognised asset or liability, or a highly probable forecast transac on, or the foreign currency risk in an unrecognised firm commitment. At the incep on of a hedge rela onship, the group documents the economic rela onship between hedging instruments and hedged items including whether changes in the cash flow of the hedging instruments are expected to offset changes in the cash flows of hedged items. The group documents its risk management objec ve and strategy for undertaking its hedge transac ons. The fair values of deriva ve financial instruments designated in hedge rela onships are disclosed in note 36. Movements in the hedging reserve in equity are shown in note 36. The full fair value of a hedging deriva ve is classified as a current asset or liability. The group has hedges which meet the criteria for cash flow hedge accoun ng and are accounted for as follows. The effec ve por on of changes in the fair value of deriva ves that are designated and qualify as cash flow hedges is recognised in the cash flow hedge reserve within equity. The gain or loss rela ng to the ineffec ve por on is recognised immediately in profit or loss.

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