Air New Zealand 2010 Annual Report Download - page 12

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LEASE PAYMENTS
Operating leases
Leases under which a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments
made under operating leases (net of any incentives received) are recognised as an expense in the Statement of Financial Performance on a straight-line
basis over the term of the lease.
Finance leases
Payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is
allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
MAINTENANCE COSTS
The cost of major engine overhauls for aircraft owned by the Group is capitalised and depreciated over the period to the next expected inspection or overhaul.
Where there is a commitment to maintain aircraft held under operating lease arrangements, a provision is made during the lease term for the lease return
obligations specified within those lease agreements. The provision is based upon historical experience, manufacturers’ advice and, where appropriate,
contractual obligations in determining the present value of the estimated future costs of major airframe inspections and engine overhauls by making
appropriate charges to the Statement of Financial Performance, calculated by reference to the number of hours or cycles operated during the year.
All other maintenance costs are expensed as incurred.
FINANCIAL INSTRUMENTS
Non-derivative financial instruments
Non-derivative financial instruments include cash and cash equivalents, other interest-bearing assets, trade and other receivables (excluding
prepayments), interest-bearing liabilities and trade and other payables. These are recognised initially at fair value plus any attributable transaction costs.
Subsequent to initial recognition, non-derivative financial instruments are recognised as described below.
Loans and receivables:
Cash and cash equivalents
Cash and cash equivalents include cash on hand, demand deposits, current accounts in banks net of overdrafts and other short-term highly liquid
investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
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.
10
AIR NEW ZEALAND
STATEMENT OF ACCOUNTING POLICIES (CONTINUED)
FOR THE YEAR TO 30 JUNE 2010