Blue Label Telecoms Integrated Annual Report 2019

Notes to the Group annual financial statements continued For the year ended 31 May 2019 126 Blue Label annual financial statements 2019 12. 2018 ACCOUNTING POLICIES continued 12.1 Revenue continued Critical accounting estimates and assumptions Significant judgements are made by management when concluding whether the Group is transacting as an agent or a principal. The assessment is performed for each separate revenue stream in the Group. The assessment requires an analysis of key indicators, specifically whether the Group: ◆◆ carries any inventory risk; ◆◆ has the primary responsibility for providing the goods or services to the customer; ◆◆ has the latitude to establish pricing; and ◆◆ bears the customer’s credit risk. These indicators are used to determine whether the Group has exposure to the significant risks and rewards associated with the sale of goods or rendering of services. For example, any sale relating to inventory that is held by the Group, not on consignment, is a strong indicator that the Group is acting as a principal. Where the Group acts in its capacity as principal for the sale of goods or the rendering of services, as it does in the sale of physical prepaid airtime and the sale of handsets, revenue is recognised as the fair value of the consideration receivable net of discounts and taxes. Where the Group acts in its capacity as an agent, as it does in the sale of electricity and PINless airtime, the amount of revenue recorded is the fair value of commission received or receivable. 12.2 Financial instruments and financial risks Financial instruments carried on the statement of financial position include: Financial assets ◆◆ Loans receivable ◆◆ Trade and other receivables ◆◆ Cash and cash equivalents ◆◆ Financial assets at fair value through profit or loss ◆◆ Starter pack assets ◆◆ Bonds Financial liabilities ◆◆ Borrowings ◆◆ Trade and other payables ◆◆ Contingent purchase consideration ◆◆ Put option liability ◆◆ Liquidity support The Group recognises a financial asset or a financial liability on its statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the instrument. Financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent recognition is dependent on how financial instruments are classified on initial recognition. IAS 39 has several categories but the Group only has financial instruments classified as loans and receivables, fair value through profit or loss and financial liabilities at amortised cost. Financial assets are only derecognised when the criteria for derecognition in IAS 39 are achieved. Category Measurement Loans and receivables • Loans receivable • Trade and other receivables • Starter pack assets • Cash and cash equivalents Amortised cost using the effective interest method with interest recognised in interest income, less any impairment losses which are recognised as part of credit impairment charges. Directly attributable transaction costs and fees received are capitalised and amortised through interest income as part of the effective interest rate. Fair value through profit or loss • Put option liability • Bonds and liquidity support Fair value, with gains or losses recognised in profit or loss. Financial liabilities • Borrowings • Trade and other payables • Put option liability • Contingent purchase consideration Amortised cost using the effective interest method with interest recognised in interest expense. Directly attributable transaction costs and fees received are capitalised and amortised through interest expense as part of the effective interest rate.