Ryanair 2006 Annual Report Download - page 31

Derivative Financial Instruments*
(Continued)
Where a derivative financial instrument is designated as a
hedge of the variability in cash flows of a recognised asset or
liability or a highly probable forecasted transaction, the
effective part of any gain or loss on the derivative financial
instrument is recognised directly in equity (in the cash flow
hedging reserve). When the forecasted transaction results in
the recognition of an asset or liability, the cumulative gain or
loss is removed from equity and included in the initial
measurement of the asset or liability for non financial items
being hedged. Otherwise the cumulative gain or loss is
removed from equity and recognised in the income
statement at the same time as the hedged transaction. The
ineffective part of any hedging transaction and the gain or
loss therein is recognised in the income statement
immediately.
When a hedging instrument or hedge relationship is
terminated but the hedged transaction still is expected to
occur, the cumulative gain or loss at that point remains in
equity and is recognised in accordance with the above policy
when the transaction occurs. If the hedged transaction is no
longer expected to take place, the cumulative unrealised
gain or loss recognised in equity is recognised in the income
statement immediately.
Where a derivative financial instrument hedges the changes
in fair value of a recognised asset or liability or an
unrecognised firm commitment, any gain or loss on the
hedging instrument is recognised in the income statement.
The hedged item also is stated at fair value in respect of the
risk being hedged, with any gain or loss also being
recognised in the income statement.
Income Taxes including Deferred
Income Taxes
Income tax on the profit or loss for the year comprises
current and deferred tax. Income tax is recognized in the
income statement except to the extent that it relates to
items recognized directly in equity (derivative financial
instruments and pensions and other post retirement
obligations), in which case it is recognized in equity. Current
tax payable on taxable profits is recognised as an expense in
the period in which the profits arise using tax rates enacted
or substantially enacted at the balance sheet date.
Deferred income tax is provided in full, using the liability
method, on temporary timing differences arising from the
tax bases of assets and liabilities and their carrying amounts
in the consolidated financial statements. Deferred income
tax is determined using tax rates and legislation enacted or
substantially enacted by the balance sheet date and
expected to apply when the deferred tax asset is realised or
the deferred tax liability is settled. The following temporary
differences are not provided for: the initial recognition of
assets and liabilities that effect neither accounting nor
taxable profit and differences relating to investments in
subsidiaries to the extent that it is probable they will not
reverse in the future.
The carrying amount of deferred tax assets is reviewed at
each balance sheet date and reduced to the extent that it is
no longer probable that a sufficient taxable profit would be
available to allow all or part of the deferred tax asset to be
utilised.
Leases
Assets held under finance leases, which are leases where
substantially all the risks and rewards of ownership have
transferred to the group, are capitalised in the balance sheet
and are depreciated over their estimated useful lives. The
asset is recorded at the lower of its fair value, less
accumulated depreciation, and the present value of the
minimum lease payments at the inception of the finance
lease. The present values of the future lease payments are
recorded as obligations under finance leases and the interest
element of the lease obligation is charged to the income
statement over the period of the lease in proportion to the
balances outstanding.
Expenditure arising under operating leases (being leases
where the lessor retains substantially all the risks and
rewards of ownership) is charged to the income statement as
incurred. The group also enters into sale and leaseback
transactions whereby it sells the rights to acquire aircraft to
a third party and subsequently leases the aircraft back, by
way of operating lease. Any profit on the disposal, where the
price achieved on the disposal of the aircraft is not
considered to be at fair value, is spread over the period the
asset is expected to be used. The profit or loss amount
deferred is included within other creditors and analysed into
its components of greater or less than one year.
Continued
Statement of Accounting policies 31
ANNUAL REPORT & FINANCIAL STATEMENTS 2006