EasyJet 2009 Annual Report Download - page 66

64 easyJet plc Annual report and accounts 2009
NOTES TO THE ACCOUNTS CONTINUED
1 Accounting policies (continued)
Non-derivative financial assets
Non-derivative financial assets are recorded at amortised cost and include loan notes, trade receivables, cash and money market deposits. Restricted cash
comprises cash deposits which have restrictions governing their use and is classified as a current or non-current asset based on the estimated remaining
length of the restriction. Cash and cash equivalents comprise cash held in bank accounts with no access restrictions and bank or money market deposits
repayable on demand or maturing within three months of inception.
Impairment losses are recognised on financial assets carried at amortised cost where there is objective evidence that an impairment loss has been incurred.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of future cash flows, discounted at the
original effective interest rate. If, subsequently, the amount of the impairment loss decreases, and the decrease can be related objectively to an event that
occurred after the impairment was recognised, the appropriate portion of the loss is reversed. Both impairment losses and reversals are recognised in the
income statement as components of net finance (charges) / income.
Investments in equity instruments are carried at cost where fair value cannot be reliably measured due to significant variability in the range of reasonable fair
value estimates.
Interest income on cash and money market deposits is recognised using the effective interest method.
Non-derivative financial liabilities
Non-derivative financial liabilities are initially recorded at fair value less directly attributable transaction costs, and subsequently at amortised cost.
Borrowings are classified as current liabilities unless there is an unconditional right to defer settlement of the liability for at least 12 months after the balance
sheet date.
Interest expense on loans is recognised using the effective interest method.
Derivative financial instruments
Derivative financial instruments are measured at fair value.
Derivative financial instruments designated as cash flow hedges are used to mitigate operating and investing transaction exposures to movements in jet fuel
prices and currency exchange rates. Hedge accounting is applied to these instruments.
Changes in intrinsic fair value are recognised in shareholders’ funds to the extent that the cash flow hedges are determined to be effective. All other changes
in fair value are recognised immediately in the income statement. Where the hedged item results in a non-financial asset or liability, the accumulated gains
and losses previously recognised in shareholders’ funds form part of the initial carrying amount of the asset or liability. Otherwise accumulated gains and
losses are recognised in the income statement in the same period in which the hedged items affect the income statement.
Hedge accounting is discontinued when a hedging instrument is derecognised (e.g. through expiry or disposal), or no longer qualifies for hedge accounting.
Where the hedged item is a highly probable forecast transaction, the related gains and losses remain in shareholders’ funds until the transaction takes place.
When a hedged future transaction is no longer expected to occur, any related gains and losses previously recognised in shareholders’ funds are immediately
recognised in the income statement.
Tax
Tax expense in the income statement consists of current and deferred tax. The charge for current tax is based on the results for the year as adjusted for
income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income. Tax is recognised in the income
statement except when it relates to items credited or charged directly to shareholders’ funds, in which case it is recognised in shareholders’ funds.
Deferred tax is provided in full on temporary differences relating to the carrying amount of assets and liabilities, where it is probable that the recovery
or settlement will result in an obligation to pay more, or a right to pay less, tax in the future, with the following exceptions:
 where the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities
in a transaction that affects neither taxable income nor accounting profit.
 deferred tax arising on investments in subsidiaries is not recognised where easyJet is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which recovery of assets and settlement
of liabilities are expected to take place, based on tax rates or laws enacted or substantively enacted at the balance sheet date.
Deferred tax assets represent amounts recoverable in future periods in respect of deductible temporary differences, losses and tax credits carried forward.
Deferred tax assets are recognised to the extent that it is probable that there will be suitable taxable profits from which they can be deducted.
Deferred tax liabilities represent the amount of income taxes payable in future periods in respect of taxable temporary differences.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and it is the
intention to settle these on a net basis.