Qantas 2010 Annual Report Download - page 55

53 ANNUAL REPORT 2010
for the year ended 30 June 2010
Notes to the Financial Statements continued
(D) PRINCIPLES OF CONSOLIDATION
Controlled Entities
Controlled entities are entities controlled by Qantas. Control exists when
Qantas has the power, directly or indirectly, to govern the  nancial and
operating policies of an entity so as to obtain bene ts from its activities.
In assessing control, potential voting rights that presently are exercisable
or convertible are taken into account.
The Financial Statements of controlled entities are included in the
Consolidated Financial Statements from the date that control
commences until the date that control ceases.
Intra-group transactions, balances and unrealised gains and losses on
transactions between group companies are eliminated in preparing the
Consolidated Financial Statements.
Non-controlling interests in the results and equity of controlled entities
are shown separately in the Consolidated Income Statement,
Consolidated Statement of Comprehensive Income, Consolidated
Statement of Changes in Equity and Consolidated Balance Sheet.
Associates and Jointly Controlled Entities
Associates are those entities in which the Qantas Group has signi cant
in uence, but not control or joint control, over the  nancial and
operating policies.
Jointly controlled entities are those entities over whose activities the
Qantas Group has joint control, established by contractual agreement.
Investments in associates and jointly controlled entities are accounted
for using the equity accounting method. The investments are carried at
the lower of the equity accounted amount and the recoverable amount.
The Qantas Group’s share of the associates’ and jointly controlled entity’s
post-acquisition pro t or loss is recognised in the Consolidated Income
Statement from the date that signi cant in uence or joint control
commences until the date that signi cant in uence or joint control
ceases. The Qantas Group’s share of post-acquisition movements in
reserves is recognised in other comprehensive income. The cumulative
post-acquisition movements are adjusted against the carrying value of
the investment. Dividends reduce the carrying amount of the equity
accounted investment.
When the Qantas Group’s share of losses exceeds its equity accounted
carrying value of an associate or jointly controlled entity, the Qantas
Group’s carrying amount is reduced to nil and recognition of further
losses is discontinued, except to the extent that the Qantas Group has
incurred legal or constructive obligations or made payments on behalf
of an associate or jointly controlled entity.
(E) FOREIGN CURRENCY
Transactions
Transactions in foreign currencies are translated to functional currency
at the rates of exchange prevailing at the date of each transaction except
where hedge accounting is applied. At balance date, monetary assets
and liabilities denominated in foreign currencies are translated to the
functional currency at the rates of exchange prevailing at that date.
Resulting exchange differences are brought to account as exchange
gains or losses in the Income Statement in the year in which the
exchange rates change. Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction. Non-monetary
assets and liabilities denominated in foreign currencies that are stated at
fair value are translated to Australian dollars at foreign exchange rates
prevailing at the dates the fair value was determined.
Translation of Foreign Operations
Assets and liabilities of foreign operations, including controlled entities
and investments in associates and jointly controlled entities, are
translated at the rates of exchange prevailing at balance date. The
Income Statements of foreign operations are translated to Australian
dollars at rates approximating the foreign exchange rates prevailing at
the dates of the transactions. Exchange differences arising on translation
are recognised in other comprehensive income and are presented within
equity in the foreign currency translation reserve. The balance of the
foreign currency translation reserve relating to a foreign operation that
is disposed of, or partially disposed of, is recognised in the Income
Statement in the year of disposal.
When the settlement of a monetary item receivable from or payable to a
foreign operation is neither planned nor likely in the foreseeable future,
foreign exchange gains and losses arising from such a monetary item are
considered to form part of the net investment in a foreign operation and
are recognised in other comprehensive income and are presented within
equity in the foreign currency translation reserve.
(F) DERIVATIVE FINANCIAL INSTRUMENTS
The Qantas Group is subject to foreign currency, interest rate, fuel price
and credit risks. Derivative and non-derivative  nancial instruments are
used to hedge these risks. It is Qantas policy not to enter into, issue or
hold derivative  nancial instruments for speculative trading purposes.
Derivative  nancial instruments are recognised at fair value both initially
and on an ongoing basis. Transaction costs attributable to the derivative
are recognised in the Consolidated Income Statement when incurred.
The method of recognising gains and losses resulting from movements
in market prices depends on whether the derivative is a designated
hedging instrument, and if so, the nature of the risk being hedged. The
Qantas Group designates certain derivatives as either hedges of the fair
value of recognised assets or liabilities or a  rm commitment (fair value
hedges); or hedges of highly probable forecast transactions (cash  ow
hedges). Gains and losses on derivative  nancial instruments qualifying
for hedge accounting are recognised in the same category in the
Consolidated Income Statement as the underlying hedged item.
Changes in underlying market conditions or hedging strategies could
result in recognition in the Consolidated Income Statement of changes in
fair value of derivative  nancial instruments designated as hedges.
Qantas documents at the inception of the transaction the relationship
between hedging instruments and hedged items, including the risk
management objective and strategy for undertaking each transaction.
Qantas also documents its assessment, both at hedge inception and on
an ongoing basis, of whether the hedging instruments that are used in
hedge transactions have been and will continue to be highly effective.
Fair Value Hedges
Changes in the fair value of derivative  nancial instruments that are
designated and qualify as fair value hedges are recorded in the
Consolidated Income Statement, together with any changes in the
fair value of the hedged asset or liability that are attributable to the
hedged risk.
Cash Flow Hedges
The effective portion of changes in the fair value of derivative  nancial
instruments that are designated and qualify as cash  ow hedges are
recognised in other comprehensive income and are presented within
equity in the hedge reserve. The cumulative gain or loss in the hedge
reserve is recognised in the Consolidated Income Statement in the
periods when the hedged item will affect pro t or loss (i.e. when the
underlying income or expense is recognised). Where the hedged item is
of a capital nature, the cumulative gain or loss recognised in the hedge
reserve is transferred to the carrying amount of the asset or liability when
the asset or liability is recognised.
1. Statement of Signi cant Accounting Policies continued