EasyJet 2014 Annual Report Download - page 109

Accounts & other information
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Changes in fair value are recognised in other comprehensive income 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 is
a non-financial asset, the accumulated gains and losses previously recognised in other comprehensive income form part of the
initial carrying amount of the asset. 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' equity until the transaction takes place.
When a hedged future transaction is no longer expected to occur, any related gains and losses held in shareholders' equity are
immediately recognised in the income statement.
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If a claim on a financial guarantee given to a third party becomes probable, the obligation is recognised at fair value. For
subsequent measurement, the carrying amount is the higher of initial measurement and best estimate of the expenditure
required to settle the obligation at the reporting date.
Tax
Tax expense in the income statement consists of current and deferred tax. Tax is recognised in the income statement except
when it relates to items credited or charged directly to other comprehensive income or shareholders’ equity, in which case it is
recognised in other comprehensive income or shareholders’ equity. 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.
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; and
 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 calculated 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 date of the
statement of financial position.
Deferred tax assets represent amounts recoverable in future periods in respect of deductible temporary differences, losses and
tax credits carried forwards. 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.
Aircraft maintenance provisions
The accounting for the cost of providing major airframe and certain engine maintenance checks for owned and finance-leased
aircraft is described in the accounting policy for property, plant and equipment.
easyJet has contractual obligations to maintain aircraft held under operating leases. Provisions are created over the term of the
lease based on the estimated future costs of major airframe checks, engine shop visits and end of lease liabilities. These costs
are discounted to present value where the amount of the discount is considered material.
Where an aircraft is sold and leased back, other than when first delivered to easyJet, a liability to undertake future maintenance
activities, resulting from past flying activity, arises at the point the lease agreement is signed. The cost is treated as part of the
surplus or shortfall arising on the sale and leaseback, the accounting treatment of which is described in the leases accounting policy.
A number of leases also require easyJet to pay supplemental rent to the lessor. The purpose of these payments is to provide
the lessor with collateral should an aircraft be returned in a condition that does not meet the requirements of the lease.
Supplemental rent is either refunded when qualifying maintenance is performed, or when the lease ends.