Holiday Inn 2015 Annual Report Download - page 98

Accounting policies continued
Trade receivables
Trade receivables are recorded at their original amount less provision
for impairment. It is the Group’s policy to provide for 100% of the
previous month’s aged receivables balances which are more than 180
days past due. Adjustments to the policy may be made due to specific
or exceptional circumstances. The carrying amount of the receivable
is reduced through the use of a provision account and movements in
the provision are recognised in the income statement within cost of
sales. When a previously provided trade receivable is uncollectable,
it is written off against the provision.
Cash and cash equivalents
Cash comprises cash in hand and demand deposits.
Cash equivalents are short-term highly liquid investments with an
original maturity of three months or less that are readily convertible
to known amounts of cash and subject to insignificant risk of changes
in value.
In the statement of cash flows, cash and cash equivalents are shown
net of short-term overdrafts which are repayable on demand and form
an integral part of the Group’s cash management.
Assets held for sale
Assets and liabilities are classified as held for sale when their carrying
amount will be recovered principally through a sale transaction rather
than continuing use and a sale is highly probable and expected to
complete within one year. For a sale to be highly probable, management
need to be committed to a plan to sell the asset and the asset must be
actively marketed for sale at a price that is reasonable in relation to its
current fair value.
Assets designated as held for sale are held at the lower of carrying
amount at designation and fair value less costs to sell.
Depreciation is not charged against property, plant and equipment
classified as held for sale.
Financial liabilities
Financial liabilities are measured at amortised cost using the effective
interest rate method. A financial liability is derecognised when the
obligation under the liability expires, is discharged or is cancelled.
Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net amount
is reported in the Group statement of financial position if there is a
currently enforceable legal right to offset the recognised amounts and
there is an intention to settle on a net basis or to realise the assets and
settle the liabilities simultaneously. To meet these criteria, the right of
set-off must not be contingent on a future event and must be legally
enforceable in all of the following circumstances: the normal course of
business, the event of default and the event of insolvency or bankruptcy
of the Group and all of the counterparties.
Trade payables
Trade payables are non-interest-bearing and are stated at their
nominal value.
Bank and other borrowings
Bank and other borrowings are initially recognised at the fair value of
the consideration received less directly attributable transaction costs.
They are subsequently measured at amortised cost. Finance charges,
including the transaction costs and any discount or premium on issue,
are recognised in the income statement using the effective interest
rate method.
Borrowings are classified as non-current when the repayment date
is more than 12 months from the period-end date or where they are
drawn on a facility with more than 12 months to expiry.
Derivative financial instruments and hedging
Derivatives are initially recognised and subsequently re-measured
at fair value. The method of recognising the re-measurement depends
on whether the derivative is designated as a hedging instrument, and
if so, the nature of the item being hedged.
Changes in the fair value of derivatives designated as cash flow hedges
are recorded in other comprehensive income and the unrealised gains
and losses reserve to the extent that the hedges are effective. When
the hedged item is recognised, the cumulative gains and losses on the
related hedging instrument are reclassified to the income statement.
Changes in the fair value of derivatives designated as net investment
hedges are recorded in other comprehensive income and the currency
translation reserve to the extent that the hedges are effective. The
cumulative gains and losses remain in equity until a foreign operation
is sold, at which point they are reclassified to the income statement.
Changes in the fair value of derivatives which have either not
beendesignated as hedging instruments or relate to the ineffective
portion of hedges are recognised immediately in the income statement.
Documentation outlining the measurement and effectiveness of any
hedging arrangements is maintained throughout the life of the hedge
relationship.
Interest arising from currency derivatives and interest rate swaps is
recorded in either financial income or expenses over the term of the
agreement, unless the accounting treatment for the hedging
relationship requires the interest to be taken to reserves.
Self insurance
Liabilities in respect of self insured risks include projected settlements
for known and incurred but not reported claims. Projected settlements
are estimated based on historical trends and actuarial data.
Provisions
Provisions are recognised when the Group has a present obligation
as a result of a past event, it is probable that a payment will be made
and a reliable estimate of the amount payable can bemade. If the effect
of the time value of money is material, theprovision is discounted using
a current pre-tax discount rate that reflects the risks specific to
the liability.
An onerous contract provision is recognised when the unavoidable
costs of meeting the obligations under a contract exceed the economic
benefits expected to be received under it.
In respect of litigation, provision is made when management consider
it probable that payment may occur even though the defence of the
related claim may still be ongoing through the court process.
Taxes
Current tax
Current income tax assets and liabilities for the current and prior
periods are measured at the amount expected to be recovered from or
paid to the tax authorities including interest. The tax rates and tax laws
used to compute the amount are those that are enacted or substantively
enacted at the end of the reporting period.
Deferred tax
Deferred tax assets and liabilities are recognised in respect of
temporary differences between the tax base and carrying value
of assets and liabilities including accelerated capital allowances,
unrelieved tax losses, unremitted profits from subsidiaries, gains
rolled over into replacement assets, gains on previously revalued
properties and other short-term temporary differences.
96 IHG Annual Report and Form 20-F 2015