Volkswagen Financial Services N.V.
17
3.8 Financial instruments
Loans included in financial and current assets, as well as liabilities and derivative financial
instruments, are stated at amortized cost. The Company applies hedge accounting to hedging
instruments when hedging interest and currency risk on borrowings and lendings. The Company
documents the relationship between hedging instruments and hedged items at the inception of the
transaction. Both the derivative and the hedged item are stated at amortized cost. The gain or loss
relating to any ineffective portion is recognized in the income statement within finance cost. For more
information about the value of the assets assigned as hedged items, see notes 6 and 7, of the
liabilities see notes 13 and 14, and of the financial instruments see note 22. The Company has no
derivative financial instruments other than the ones used for hedging.
Hedge accounting
FSNV applies hedge accounting. Relationships between hedging instruments and hedged items are
documented at the inception of the transaction. FSNV also assesses, both at hedge inception and
on an ongoing basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items. This is done by comparing
the critical qualitative characteristics of the hedge instrument with those of the hedged position. If
there is an indication of ineffectiveness, the Company measures this potentially ineffective part by
conducting a quantitative ineffectiveness analysis.
Cost price hedge accounting
The Company applies cost price hedge accounting to hedge interest risk and currency-risk on
borrowings. For the following instruments, (Cross currency) interest rate swaps and FX Swaps
hedge accounting is applied.
In applying cost price hedge accounting, the initial recognition of, and the accounting policies for, the
hedging instrument are dependent on the hedged item, which has the following implications:
- if the hedged item is recognized at cost in the balance sheet, the derivative instrument is
also stated at cost;
- as long as the hedged item is not yet recognized in the balance sheet, the hedging instrument
is not re-measured (this applies, for instance, to hedging currency risks on future
transactions);
- if the hedged item qualifies as a monetary item denominated in a foreign currency, the
derivative instrument, where it has currency elements, is also stated at the period end-rate
prevailing at the balance sheet date.
The ineffective portion of the hedge is recognized directly in the income statement.
Hedge effectiveness is assessed by comparing the critical characteristics of the hedge instrument
with those of the hedged position. If there is an indication of ineffectiveness, the Company measures
this potentially ineffective part by conducting a quantitative ineffectiveness analysis.
3.9 Impairment of financial assets
On each balance sheet date, the Company assesses whether there is any objective evidence that a
financial asset or group of financial assets is impaired. A financial asset is considered impaired if,
and only if, there is objective evidence of impairment as a result of one or more loss events that
occurred after the initial recognition of the asset and prior to the statement of financial position date,
and that loss event has had an impact on the estimated future cash flows of the financial asset that
can be reliably estimated.
For loans and receivables, the amount of impairment loss is measured as the difference between
the assets carrying amount and the present value of expected future cash flows discounted at the
assets original effective interest rate. The amount of the loss is included in the profit and loss
statement. If, in a subsequent period, the amount of impairment loss decreases and the decrease