The Canterbury Community Trust

Notes to the financial statements

For the year ended 31 March 2014

in New Zealand Dollars ($000's)

18 Financial instruments (continued)

Capital management

The Group’s capital includes Capital Base Reserve, Inflation Reserve, Special Fund Reserve and Accumulated Income Reserve.

The Group’s policy is to maintain a strong capital base so as to maintain stakeholder confidence and to sustain future development of The Canterbury Community Trust. This is achieved by setting aside each year sufficient sums from reserves to increase the Trust Capital by the annual rate of inflation as measured by the consumer price index. Donations policy is adjusted as required based on the financial performance of the Group’s investments.

The Group is not subject to any externally imposed capital requirements.

The Group’s policies in respect of capital management and allocation are reviewed regularly by the Board of Trustees. There have been no material changes in the Group’s management of capital during the period.

Measurement of fair value

The methods used in determining the fair values of financial instruments are discussed in note 4.

The market comparison valuation technique is applied to determine the fair values of managed funds and forward exchange contracts. These fair values are based on broker quotes. Similar securities and contracts are traded in an active market and the quotes reflect the actual transactions in similar instruments. Significant unobservable inputs are not applicable. Accordingly there is no inter-relationship between significant unobservable inputs and fair value measurement.

Fair value hierarchy

NZ IFRS 7 requires that the classification of financial instruments at fair value through profit and loss be determined by reference to the source of inputs used to derive the fair value. This classification uses the following three-level hierarchy:

• Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2 — inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)
• Level 3 — inputs for the asset or liability that are not based on observable market data (unobservable inputs)

At 31 March 2014 financial instruments with a carrying amount of $295,015,000 were transferred from level 1 to level 2 as while daily Net Asset Values are available in most instances, due to the nature of the investments being managed funds, as the level of trading activity is not publicly available the Group and Trust have determined that these investments meet the level 2 fair value hierarchy criteria. In the prior year these investments were classified as level 1 based upon confirmation from fund managers regarding the level of trading, however with hindsight the Group deem the level 2 classification to be more appropriate. The prior year figures have been reclassified to align with current year presentation.

To determine the fair value of such financial instruments, management used the market comparison technique in which all significant inputs were based on observable market data.

The fair value of the financial instruments as well as methods used to estimate the fair values are summarised in the following table: