McPHERSON’S LIMITED
ANNUAL REPORT 2015
53
(E) FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS
The following financial instruments held by the Group were measured and recognised at fair value at 30 June 2015 and 30 June 2014 on a recurring
basis:
30 JUNE 2015
30 JUNE 2014
RECURRING FAIR VALUE MEASUREMENTS
LEVEL 1
$’000
LEVEL 2
$’000
LEVEL 3
$’000
TOTAL
$’000
LEVEL 1
$’000
LEVEL 2
$’000
LEVEL 3
$’000
TOTAL
$’000
Financial assets at fair value
Derivative financial instruments
-
1,951
-
1,951
-
-
-
-
Put Option
-
-
2,587
2,587
-
-
-
-
Total financial assets at fair value
-
1,951
2,587
4,538
-
-
-
-
Financial liabilities at fair value
Derivative financial instruments
-
2,812
-
2,812
-
4,832
-
4,832
Contingent consideration
-
-
6,637
6,637
-
-
12,885
12,885
Total financial liabilities at fair value
-
2,812
6,637
9,449
-
4,832
12,885
17,717
AASB 13
Fair Value Measurement requires disclosure of fair value measurements by level using the following fair value measurement hierarchy:
Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period.
Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise
the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an
instrument are observable, the instrument is included in Level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.
The fair value of the derivative financial instruments is determined using valuation techniques. The Group uses a variety of methods and makes
assumptions that are based on market conditions existing at the end of each reporting period. The fair value of interest rate swaps is calculated as
the present value of the estimated cash flows and the fair value of forward exchange and option contracts is determined using forward exchange
market rates and volatilities at the end of the reporting period.
The following table presents the changes in level 3 instruments for the years ended 30 June 2015 and 30 June 2014:
FINANCIAL ASSET
FINANCIAL LIABILITY
PUT OPTION RECEIVABLE
$’000
CONTINGENT
CONSIDERATION PAYABLE
$’000
Opening balance as at 1 July 2013
-
9,040
Acquisitions (refer Note 31)
-
4,140
Adjustments arising from reassessment of the provision
-
(295)
Closing balance at 30 June 2014
-
12,885
Option value recognised on disposal of business (refer Note 14)
1,347
-
Adjustments arising from reassessment of the option / provision
(refer Note 14 and Note 31 respectively)
1,240
(6,248)
Closing balance at 30 June 2015
2,587
6,637
The fair values of the Group’s put option receivable and provision for contingent consideration payable are determined using internal calculations
which use relevant current and projected performance, the shareholder agreements, and contingent consideration agreements as inputs. Refer
Notes 14 and 31 for further information.