When option contracts are used to hedge forecast TRADE AND OTHER RECEIVABLES transactions, the Group designates only the intrinsic Trade and other receivables are initially recognised at fair value of the options as the hedging instrument. value and then carried at amortised cost using the effective interest method, net of impairment provisions. Gains or losses relating to the effective portion of the change in intrinsic value of the options and time value of options are INVENTORIES recognised in the cash flow hedge reserve within equity. Inventories are stated at the lower of cost and net realisable value. Cost is derived using the average cost method and When forward contracts are used to hedge forecast includes costs incurred in bringing the inventories to their transactions, the Group designates the full change in fair present location and condition. Net realisable value is the value of the forward contract (including forward points) as estimated selling price less cost to sell in the ordinary course the hedginginstrument. Thegains or losses relating to the of business. Provisions are made for obsolete, slow-moving effective portion of the change in fair value of the entire or discontinued stock and for stock losses. forward contract are recognised in the cash flow hedge reserve within equity. GOVERNMENT GRANTS Amounts accumulated in equity are reclassified in the periods The Group applies IAS 20 ‘Accounting for Government when the hedged item affects profit or loss. Where the Grants and Disclosure of Government Assistance’ when hedged item subsequently results in the recognition of a non accounting for government grants. A government grant is not financial asset (such as inventory), both the deferred hedging- recognised until there is reasonable assurance that the Group gains and losses and the deferred time value of the option will comply with the conditions attaching to it, and that the contracts or deferred forward points, if any, are included grant will be received. Government grants are recognised in within the initialcost of the asset. The deferred amounts are the Consolidated Income Statement over the same period ultimately recognised in the Consolidated Income Statement as the related costs for which the grants are intended to as the hedged item affects profit or loss (for example, through compensate. The Group has chosen to present receipt and cost of sales). repayment of government grants against the related expense. When a hedging instrument expires, or is sold or terminated, CASH AND CASH EQUIVALENTS or when a hedge no longer meets the criteria for hedge Cash and cash equivalents comprise cash balances including accounting, any cumulative deferred gain/loss and deferred credit card receipts and deposits. All cash equivalents have costs of hedging in equity at that time remain in equity until an original maturity of three months or less. the forecast transaction occurs, resulting in the recognition of a non-financial asset such as inventory. When the forecast TRADE AND OTHER PAYABLES transaction is no longer expected to occur, the cumulative Trade and other payables are recognised initially at their fair gain/loss and deferred costs of hedging that were reported value and subsequently measured at amortised cost using the in equity are immediately reclassified to the Consolidated effective interest rate method. Income Statement. BANK BORROWINGS AND BORROWING COSTS Offsetting financial instruments Interest-bearing bank loans are initially recorded at their fair Financial assets and liabilities are offset and the net amount value and subsequently held at amortised cost. Transaction reported in the Consolidated Statement of Financial costs incurred are amortised over the term of the loan. Position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle Borrowings are classed as current liabilities unless the Group on a net basis or realise the asset and settle the liability has an unconditional right to defer settlement of the liability simultaneously. The legally enforceable right must not be for at least 12 months from the Consolidated Statement of contingent on future events and must be enforceable in Financial Position date. the normal course of business and in the event of default, insolvency or bankruptcy of the Group or the counterparty. DUNELM GROUP PLC ANNUAL REPORT & ACCOUNTS 2021 195 FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OTHER INFORMATION