EasyJet 2013 Annual Report Download - page 104

 easyJet plc Annual report and accounts 2013
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Notes to the accounts continued
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easyJet enters into sale and leaseback transactions whereby it sells either new or mid-life aircraft to a third party and
immediately leases it back under an operating lease. Surpluses arising on disposal, where the price that the aircraft is
sold for is above fair value, are recognised in deferred income and amortised on a straight-line basis over the expected
lease term.
In some operating sale and leaseback arrangements, receipt of part of the proceeds is deferred until the end of the
lease, the amount of which is recorded as deferred consideration within non-current or current assets as appropriate.
Additionally, in some cases receipt of part of the sales proceeds due is exchanged for a reduction in future lease rentals,
which consequently are below market price. As a result, the proceeds received on sale and leaseback are lower than
the fair value of the aircraft sold. The resulting shortfall is deferred within non-current or current assets as appropriate,
and amortised on a straight-line basis over the expected lease term.
Non-contingent operating lease rentals are charged to the income statement on a straight line basis over the life
of the lease. A number of operating leases require easyJet to make contingent rental payments based on variable
interest rates; these are expensed as incurred.
Finance leases, which transfer to easyJet substantially all the risks and benefits incidental to ownership of the leased
item, are recognised at the inception of the lease at the fair value of the leased asset, or, if lower, at the present value
of the minimum lease payments. Any directly attributable costs of entering into financing sale and leasebacks are
included in the value of the asset recognised. Lease payments are apportioned between the finance charges and
the reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are included in interest payable and other financing charges.
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Financial instruments are recognised when easyJet becomes a party to the contractual provisions of the relevant
instrument and derecognised when it ceases to be a party to such provisions.
Where market values are not available, the fair value of financial instruments is calculated by discounting cash flows
at prevailing interest rates and by applying year end exchange rates.
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Non derivative financial assets are recorded at amortised cost and include loan notes, trade receivables, cash and
money market deposits. 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.
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. Interest income on cash and
money market deposits is recognised using the effective interest method. 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.
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.
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Non-derivative financial liabilities are initially recorded at fair value less directly attributable transaction costs, and
subsequently at amortised cost. Interest expense on borrowings is recognised using the effective interest method.
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.
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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.
102 easyJet plc Annual report and accounts 2013