Cathay Pacific 2015 Annual Report Download - page 105

Annual Report 2015
103
Funds with investment managers and other liquid
investments which are managed and evaluated on a fair
value basis are designated as at fair value through profit
or loss.
Impairment is recognised when the recoverability of the
debt is in doubt resulting from financial difficulty of a
customer or the debt in dispute.
The accounting policy for derivative financial assets is
outlined in accounting policy 10.
Financial assets are recognised or derecognised by the
Group on the date when the purchase or sale of the
assets occurs.
9. Financial liabilities
Long-term loans, finance lease obligations and trade
and other payables are stated at amortised cost or
designated as at fair value through profit or loss.
Where long-term liabilities have been defeased by the
placement of security deposits, those liabilities and
deposits (and income and charge arising therefrom) are
netted off, in order to reflect the overall commercial
effect of the arrangements. Such netting off occurs
where there is a current legally enforceable right to set
off the liability and the deposit and the Group intends
either to settle on a net basis or to realise the deposit
and settle the liability simultaneously. For transactions
entered into before 2005, such netting off occurs
where there is a right to insist on net settlement of the
liability and the deposit including situations of default
and where that right is assured beyond doubt, thereby
reflecting the substance and economic reality of the
transactions.
The accounting policy for derivative financial liabilities
is outlined in accounting policy 10.
Financial liabilities are recognised or derecognised
when the contracted obligations are incurred
or extinguished.
Interest expenses incurred under financial liabilities
are calculated and recognised using the effective
interest method.
10. Derivative financial instruments
Derivative financial instruments are used solely to
manage exposures to fluctuations in foreign exchange
rates, interest rates and jet fuel prices in accordance
with the Group’s risk management policies. The Group
does not hold or issue derivative financial instruments
for proprietary trading purposes.
All derivative financial instruments are recognised at
fair value in the statement of financial position. Where
derivative financial instruments are designated as
effective hedging instruments under HKAS 39
“Financial Instruments: Recognition and Measurement”
and hedge exposure to fluctuations in foreign exchange
rates, interest rates or jet fuel prices, any fair value
change is accounted for as follows:
(a) the portion of the fair value change that is
determined to be an effective cash flow hedge is
recognised directly in equity via the statement of
changes in equity and is included in profit or loss as
an adjustment to revenue, net finance charges or
fuel expense in the same period or periods during
which the hedged transaction affects profit or loss.
(b) the ineffective portion of the fair value change is
recognised in profit or loss immediately.
Derivatives which do not qualify as hedging
instruments under HKAS 39 “Financial Instruments:
Recognition and Measurement” are accounted for as
held for trading financial instruments and any fair value
change is recognised in profit or loss immediately.
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.
Principal Accounting Policies