Air New Zealand 2008 Annual Report Download - page 11

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AIR NEW ZEALAND
STATEMENT OF ACCOUNTING POLICIES (CONTINUED)
Trade and other receivables
Trade and other receivables are recognised at cost less any provision for impairment. A provision for impairment is established when collection is
considered to be doubtful. When a trade receivable is considered uncollectible, it is written-off against the provision.
Financial liabilities at amortised cost:
Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the
effective interest rate method, where appropriate. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer
settlement of the liability for more than 12 months after the balance sheet date.
Finance leases
Finance lease obligations are initially stated at fair value, net of transaction costs incurred. The obligations are subsequently stated at amortised cost.
Trade and other payables
Trade and other payables are stated at cost.
DERIVATIVE FINANCIAL INSTRUMENTS
Air New Zealand uses derivative financial instruments to manage its exposure to foreign exchange, fuel price and interest rate risks arising from
operational, financing and investment activities. Derivative financial instruments are recognised initially at fair value and transaction costs are expensed
immediately. Subsequent to initial recognition, derivative financial instruments are recognised as described below:
Derivative financial instruments at fair value through profit or loss
Derivative financial instruments, other than those designated as hedging instruments in a qualifying cash flow hedge (refer below), are classified as held
for trading. Subsequent to initial recognition, derivative financial instruments in this category are stated at fair value. The gain or loss on remeasurement
to fair value is recognised immediately in the Statement of Financial Performance.
Hedge accounted derivative financial instruments
Where derivatives qualify for hedge accounting in accordance with NZ IAS 39: Financial Instruments: Recognition and Measurement, recognition of any
resultant gain or loss depends on the nature of the hedging relationship, as detailed below.
Cash flow hedges
Changes in the fair value of derivative hedging instruments designated as cash flow hedges are recognised directly in the cash flow hedge reserve within
equity to the extent that the hedges are deemed effective in accordance with NZ IAS 39: Financial Instruments: Recognition and Measurement. To the
extent that the hedges are ineffective for accounting, changes in fair value are recognised in the Statement of Financial Performance.
If a hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation of the hedge
relationship is revoked or changed, then hedge accounting is discontinued. The cumulative gain or loss previously recognised in the cash flow hedge
reserve remains there until the forecast transaction occurs. If the underlying hedged transaction is no longer expected to occur, the cumulative,
unrealised gain or loss recognised in the cash flow hedge reserve with respect to the hedging instrument is recognised immediately in the Statement of
Financial Performance.
Where the hedge relationship continues throughout its designated term, the amount recognised in the cash flow hedge reserve is transferred to the
Statement of Financial Performance in the same period that the hedged item is recorded in the Statement of Financial Performance, or, when the
hedged item is a non-financial asset, the amount recognised in the cash flow hedge reserve is transferred to the carrying amount of the asset when it is
recognised.
Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to
the effective portion of the hedge is recognised in the foreign currency translation reserve within equity. The gain or loss relating to the ineffective portion
of the hedge is recognised immediately in the Statement of Financial Performance.
Fair value estimation
The fair value of financial instruments traded in active markets is based on quoted market prices at balance date. The fair value of interest-bearing
liabilities for disclosure purposes is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of
interest for similar liabilities at reporting date.
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