ESR AR 2019 EN

Notes to the Consolidated Financial Statements 31 December 2019 149 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ESR Annual Report 2019 2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, interest-bearing bank and other borrowings, financial liabilities at fair value through profit or loss, derivative financial instruments and redeemable convertible preference shares. Subsequent measurement The subsequent measurement of financial liabilities depends on their classification as follows: Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in profit or loss. Derivative financial instruments Warrant instruments are initially recognised as financial liability at fair value on the date on which the warrant instrument is issued and are subsequently remeasured at fair value. Any gains or losses arising from changes in fair value of warrant instruments are taken directly in profit or loss.