Air New Zealand 2013 Annual Report Download - page 14

Air New Zealand Annual Financial Results 
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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 financial instruments
Where financial instruments 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 hedging instruments designated as cash flow hedges are recognised within Other Comprehensive Income
and accumulated 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 other comprehensive income and accumulated 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 investments in quoted equity instruments is determined by reference to quoted market prices in an active market. This
equates to “Level 1” of the fair value hierarchy defined within “Amendments to NZ IFRS 7: Financial Instruments: Disclosures”. The fair value
of derivative financial instruments is based on published market prices for similar assets or liabilities at balance date (“Level 2” of the fair
value hierarchy). 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.
PROPERTY, PLANT AND EQUIPMENT
Owned assets
Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditure that is directly aributable to the acquisition of the item and in bringing the asset to the location and
working condition for its intended use. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges
of foreign currency purchases of property, plant and equipment.
Where significant parts of an item of property, plant and equipment have different useful lives, they are accounted for separately.
A portion of the cost of an acquired aircra is aributed to its service potential (reflecting the maintenance condition of its engines) and
is depreciated over the shorter of the period to the next major inspection event, overhaul, or the remaining life of the asset.
Leased assets
Leases under which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. All other
leases are classified as operating leases.
Upon initial recognition, assets held under finance leases are measured at amounts equal to the lower of their fair value and the present
value of the minimum lease payments at inception of the lease. A corresponding liability is also established.
Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Statement of Accounting Policies (Continued)
For the year to 30 June 2013