154 | Just Group PLC | Annual Report and Accounts 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1. MATERIAL ACCOUNTING POLICIES continued 1.13.5. Financial assets measured at amortised cost
Financial assets held at amortised cost are measured using the effective interest rate method and a loss allowance is recognised for expected credit losses. The model splits financial assets into those which are performing, underperforming and non-performing based on changes in credit quality since initial recognition. At initial recognition financial assets are considered to be performing. They become underperforming where there has been a significant increase in credit risk since initial recognition, and non-performing when there is objective evidence of impairment. 12 months of expected credit losses are recognised within expenses in the Consolidated statement of comprehensive income and netted against the financial asset in the Consolidated statement of financial position for all performing financial assets, with lifetime expected credit losses recognised for underperforming and non-performing financial assets. Expected credit losses are based on the historic levels of loss experienced for the relevant financial assets, with due consideration given to forward-looking information. The most significant categories of financial assets held at amortised cost for the Group are its portfolio of investments in sovereign gilts (see note 15) and cash available on demand. Investments are reclassified from performing to under- performing when coupons become more than 30 days past due, in line with the presumption set out in IFRS 9, or when the financial institution is no longer considered to be investment grade by the rating agents. Due to the nature of the investment in sovereign gilts, the Group concludes that these investments are low credit risk and there has been no significant deterioration in credit risk in the investments. 1.13.6. Investment contract liabilities The majority of the Group’s investment contract liabilities are linked endowment contracts. Fair value is determined by reference to the value of the assets backing the liabilities. 1.13.7. Loans and borrowings Loans and borrowings are initially recognised at fair value, net of transaction costs, and subsequently amortised through profit or loss over the period to maturity at the effective rate of interest required to recognise the discounted estimated cash flows to maturity. 1.13.8. Other financial liabilities Except for derivative financial liabilities, all other financial liabilities are held at amortised cost and measured using the effective interest rate method. 1.14. Cash and cash equivalents Cash and cash equivalents in the Consolidated statement of cash flows consist of amounts reported in Cash available on demand in the Consolidated statement of financial position and short-term highly liquid investments included in Financial investments in the Consolidated statement of financial position. Cash available on demand includes cash at bank and in hand and deposits held at call with banks. Additional cash equivalents reported in the Consolidated statement of cash flows include other short-term highly liquid investments with less than 90 days’ maturity from the date of acquisition. Those do not meet the definition of Cash available on demand and are therefore reported in Financial investments (note 15). 1.15. Equity Share capital, share premium and payment of dividends The difference between the proceeds received on issue of the shares, net of share issue costs, and the par value of the shares issued is credited to the share premium account. Interim dividends are recognised in equity in the period in which they are paid. Final dividends require shareholder approval prior to payment and are therefore recognised when they have been approved by shareholders. Where the Company purchases shares for the purposes of employee incentive plans, the consideration paid, net of issue costs, is deducted from equity within shares held by trusts. Upon issue or sale, any consideration received is credited to equity net of related costs. Other reserves The reorganisation reserve represents the difference between the value of shares in the Company and the value of subsidiary shares for which they were exchanged as part of a Group reorganisation. The merger reserve represents the difference between the value of businesses acquired and the nominal value of shares issued to acquire those businesses in a share-for-share exchange that meets the requirements to apply merger relief under Section 612 of the Companies Act 2006. Tier 1 notes Loan notes are classified as either debt or equity based on the contractual terms of the instruments. Loan notes are classified as equity where they do not meet the definition of a liability because they are perpetual with no fixed redemption or maturity date, they are only repayable on liquidation, conversion is only triggered under certain circumstances of non-compliance, and interest on the notes is non-cumulative and cancellable at the discretion of the issuer.
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