Cathay Pacific 2014 Annual Report Download - page 103

ANNUAL REPORT 2014
101 Principal Accounting Policies
11. Fair value measurement
Fair value of financial assets and financial liabilities is
determined either by reference to quoted market values or
by discounting future cash flows using market interest rates
for similar instruments.
12. Retirement benefits
For defined benefit schemes, retirement benefit costs are
assessed using the projected unit credit method. Under this
method, the cost of providing retirement benefits is charged
to the statement of profit or loss and other comprehensive
income so as to spread the regular cost over the service
lives of employees.
The asset or liability recognised on the statement of
financial position is the present value of the cost of
providing these benefits (the defined benefit obligations)
less the fair value of the plan assets at the end of the
reporting period. The defined benefit obligations are
calculated annually by independent actuaries and are
determined by discounting the estimated future cash flows
using interest rates of high quality corporate bonds. The
plan assets are valued on a bid price basis.
Actuarial gains and losses arising from experience
adjustments and changes in actuarial assumptions are
charged or credited to other comprehensive income in
statement of profit or loss and other comprehensive income in
the period in which they arise and accumulated in equity. Past
service costs are recognised immediately in the statement of
profit or loss and other comprehensive income.
For defined contribution schemes, the Group’s
contributions are charged to the statement of profit or loss
and other comprehensive income in the period to which the
contributions relate.
13. Deferred taxation
Deferred taxation is provided in full, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in
the financial statements. However, if the deferred tax arises
from initial recognition of an asset or liability in a transaction
other than a business combination that, at the time of the
recognition, has no impact on taxable nor accounting profit
or loss, it is not recognised.
Deferred tax assets relating to unused tax losses and
deductible temporary differences are recognised to the
extent that it is probable that future taxable profits will be
available against which these unused tax losses and
deductible temporary differences can be utilised.
In addition, where initial cash benefits have been received in
respect of certain lease arrangements, provision is made for
the future obligation to make tax payments.
14. Stock
Stock held for consumption is valued either at cost or
weighted average cost less any applicable allowance for
obsolescence. Stock held for disposal is stated at the lower
of cost and net realisable value. Net realisable value
represents estimated resale price.
15. Assets held for sale
Non-current assets are classified as assets held for sale
when their carrying amounts are to be recovered principally
through a sale transaction and a sale is considered highly
probable. They are stated at the lower of carrying amount
and fair value less costs of disposal.
16. Revenue recognition
Passenger and cargo sales are recognised as revenue when
the transportation service is provided. The value of unflown
passenger and cargo sales is recorded as unearned
transportation revenue. Income from catering and other
services is recognised when the services are rendered.
Interest income is recognised as it accrues while dividend
income is recognised when the right to receive payment
is established.
17. Maintenance and overhaul costs
Replacement spares and labour costs for maintenance and
overhaul of aircraft are charged to profit or loss on
consumption and as incurred respectively unless they are
capitalised according to the accounting policy 5.
18. Loyalty programme
The Company operates a customer loyalty programme
called Asia Miles (the “programme”). As members
accumulate miles by travelling on Cathay Pacific or
Dragonair flights, or when the Company sells miles to
participating partners in the programme, revenue from the
initial sales transaction equal to the programme awards at
their fair value is deferred as a liability until the miles are
redeemed or the passenger is uplifted in the case of the
Group’s flight redemptions. Breakage, the proportion of
points that are expected to expire, is recognised to reduce
fair value, and is determined by a number of assumptions
including historical experience, future redemption pattern
and programme design.
Marketing revenue, associated with the sales of miles to
participating partners is measured as the difference
between the consideration received and the revenue
deferred, and is recognised when the service is performed.
19. Related parties
Related parties are individuals and companies,
including subsidiary, fellow subsidiary, jointly controlled and
associated companies and key management (including
close members of their families), where the individual,
Company or Group has the ability, directly or indirectly, to
control the other party or exercise significant influence over
the other party in making financial and operating decisions.
20. Provisions and contingent liabilities
Provisions are recognised when the Group or the Company
has a legal or constructive obligation arising as a result of a
past event, it is probable that an outflow of economic
benefits will be required to settle the obligation and a reliable
estimate can be made. Where it is not probable that an
outflow of economic benefits is required, or the amount
cannot be estimated reliably, the obligation is disclosed as a
contingent liability, unless the probability of outflow of
economic benefits is remote.