Cathay Pacific 1998 Annual Report Download - page 37

Download and view the complete annual report

Please find page 37 of the 1998 Cathay Pacific annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 70

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70

Principal Accounting Policies
35
CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998
6. Leased assets
Fixed assets held under lease agreements that give rights equivalent to ownership are treated as if
they had been purchased outright at fair market value, and the corresponding liabilities to the lessor,
net of interest charges, are included as obligations under finance leases. Any profits or losses under
sale and leaseback arrangements are included as part of the cost of the leased assets.
Amounts payable in respect of finance leases are apportioned between interest charges and
reductions of obligations based on the interest rates implicit in the leases.
Operating lease payments are charged to the profit and loss account on a straight line basis over
the life of the related lease.
7. Long-term investments
Long-term investments are stated at cost less provision, where applicable, for any permanent
diminution in value.
8. Stocks
Stocks held for consumption are valued at weighted average cost, less any applicable allowance
for obsolescence. Stocks held for disposal are stated at the lower of cost and net realisable value.
Net realisable value represents estimated resale price.
9. Funds with investment managers and other liquid investments
Funds with investment managers and other liquid investments are marked to market and any gain
or loss arising from their revaluation is taken to the profit and loss account.
10. Defeasance of long-term liabilities
Where long-term liabilities have been defeased by the placement of security deposits, those
liabilities and deposits (and income and charges arising therefrom) are netted off, in order to reflect
the overall commercial effect of the arrangements. Such netting off has been effected where a right
is held to insist on net settlement of the liability and deposit at any time and where no significant
risk is borne in respect of the gross amounts.
11. Security deposits, notes and zero coupon bonds
Cash deposits and notes placed in respect of certain leasing and financing arrangements are
stated at cost and set off against the relevant liabilities or obligations in the balance sheet. Interest
income arising thereon is similarly set off against the interest charges on the related liabilities or
obligations.
Zero coupon bonds purchased to meet future leasing obligation repayments are stated at maturity
value and are set off against the principal amounts outstanding under the relevant obligations in the
balance sheet. The discount or premium thereon is included in other deferred items and is amortised
over the period to maturity. Amounts amortised in the year are included in net finance charges in the
profit and loss account.
12. Currency and interest rate swaps and fuel price derivatives
The Group has entered into currency and interest rate transactions to effectively convert certain
lease payments and loan repayments, including both principal and interest, into requisite currencies
and interest bases. As a result, long-term borrowings reflect the ultimate repayable currencies and
interest bases. Amounts receivable or payable under interest rate derivative transactions are accrued
as an adjustment to interest expense.