329 ANNUAL REPORT 2022 ACCOUNTABILITY NOTES TO THE FINANCIAL STATEMENTS (CONT’D) For the financial year ended 31 January 2022 39. Fair value measurement (continued) (a) Fair value hierarchy (continued) The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. The fair value of investment funds is determined based on independent fund valuations. These investments are classified as Level 2 and comprise other investments and derivative financial instruments. In infrequent circumstances, where a valuation technique for these instruments is based on significant unobservable inputs, such instruments are classified as Level 3. (b) Financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value The following are classes of the Group’s and the Company’s financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value: Note Trade and other receivables 24 Loans and borrowings 32 Trade and other payables 35 The carrying amounts of financial assets and financial liabilities are reasonable approximation of fair values, either due to short-term nature or those floating rate instruments that are re-priced to market interest rates on or near the reporting date. The carrying amounts of non-current receivables are reasonable approximations of fair values. They are classified as Level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs. The carrying amounts of the current portion of loans and borrowings are reasonable approximation of fair values due to the insignificant impact of discounting. The carrying amounts of non-current loans and borrowings are reasonable approximation of fair values due to those floating rate instruments that are re-priced to market interest rates on or near the reporting date. The fair values of non-current loans and borrowings are estimated by discounting expected future cash flows at market incremental lending rate for similar types of lending, borrowing or leasing arrangements at the reporting date. Financial guarantees Fair value is determined based on probability weighted discounted cash flow method. The probability has been estimated and assigned for the following key assumptions: - The likelihood of the guaranteed party defaulting within the guarantee period; - The exposure on the portion that is not expected to be recovered due to the guaranteed party’s default; and - The estimated loss exposure if the party guaranteed were to default. The Company has assessed the financial guarantee contracts and concluded that the financial impact of the guarantees is not material as the probability of crystallisation is remote.
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