Aer Lingus 2011 Annual Report Download - page 74

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Annual Report 2011
72
FINANCIAL STATEMENTS Aer Lingus Group Plc
Notes to the consolidated financial statements (continued)
2.10 Impairment of financial assets
Assets carried at amortised cost
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective
evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that
loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be
reliably estimated.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:
•Significant financial difficulty of the issuer or obligor;
• A breach of contract, such as default or delinquency in interest or principal payments;
• The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the
lender would not otherwise consider;
• It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
• The disappearance of an active market for that financial asset because of financial difficulties; or
• Observable data indicating that there is a measureable decrease in the estimated future cash flows from a portfolio of financial assets
since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the
portfolio, including:
(i) Adverse changes in the payment status of borrowers in the portfolio; and
(ii) National or local economic conditions that correlate with defaults on the assets in the portfolio.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The
asset’s carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan
or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective
interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s
fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring
after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised
impairment loss is recognised in the consolidated income statement.
Impairment testing of trade receivables is described in note 2.13.
2.11 Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their
fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument,
and if so, the nature of the item being hedged. The Group designates certain derivatives as either:
• Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges); or
• Hedges of a particular risk associated with a recognised assets or liability or a highly probable forecast transaction (cash flow hedge).
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its
risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at
hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items.