Aer Lingus 2010 Annual Report Download - page 67

Financial Statements Aer Lingus Group Plc – Annual Report 2010 65
3 Financial risk management (continued)
The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2010.
Level 1 Level 2 Level 3 Total
€’000 €’000 €’000 €’000
Assets
Derivative fi nancial instruments - 48,723 - 48,723
Liabilities
Derivative fi nancial instruments - 7,511 - 7,511
The fair value of fi nancial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using
valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible
on entity specifi c estimates. If all signifi cant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Specifi c valuation techniques used to value fi nancial instruments include:
• The fair value of interest rate swaps is calculated as the present value of the estimated future cash fl ows based on observable yield curves.
• The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the
resulting value discounted back to present value
• The fair value of fuel price swaps is determined using forward fuel prices at the balance sheet date, with the resulting value discounted
back to present value.
4 Critical accounting estimates and judgements
The Group believes that of its signifi cant accounting policies and estimates, the following may involve a higher degree of judgement
and complexity:
(a) Provisions
The Group makes provisions for legal and constructive obligations, which it knows to be outstanding at the period-end date. These provisions
are generally made based on historical or other pertinent information, adjusted for recent trends where relevant. However, they are estimates
of the fi nancial costs of events that may not occur for some years. As a result of this and the level of uncertainty attaching to the fi nal
outcomes, the actual outturn may differ signifi cantly from that estimated.
(b) Post retirement benefi ts
As the provisions of trust deeds governing the Irish Pension Schemes are such that no changes to the contribution rates are possible without
the prior consent of the Group, the Group has concluded that it has no obligation, legal or constructive, to increase its contributions beyond
those levels. As such, it has accounted for the Irish Pension Schemes as defi ned contribution schemes under the provisions of IAS 19
Employee Benefi ts, and, as a result, does not recognise any surplus or defi cit in the schemes on the statement of fi nancial position.
If any legal or constructive obligation to vary the Group’s contributions based on the funding status of the Irish Pension Schemes arises, IAS
19 requires the Group to include any pension fund surplus or defi cit on its statement of fi nancial position and refl ect any period on period
movements in its income statement or the statement of comprehensive income.
(c) Impairment of non-fi nancial assets
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. For the purpose of
assessing impairment, assets are grouped at the lowest levels for which there are separately identifi able cash fl ows (cash-generating units).
Non-fi nancial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.