Vtech 2008 Annual Report Download - page 37

VTech Holdings Ltd Annual Report 2008 35
PRINCIPAL ACCOUNTING POLICIES CONTINUED
U Financial Instruments
The Group’s activities expose it to  nancial risks of changes in
foreign currency exchange rates and interest rates. The Group
uses foreign exchange forward contracts to hedge certain
exposures.
The use of  nancial derivatives is governed by the Group’s
policies approved by the Board of Directors, which provide
written principles on the use of  nancial derivatives.
Derivative  nancial instruments are initially recognised in the
balance sheet at cost and subsequently are remeasured at
their fair value. The method of recognising the resulting gain
or loss is dependent on the nature of the item being hedged.
On the date a derivative contract is entered into, the Group
designates certain derivatives as either a hedge of the fair value
of a recognised asset or liability (fair value hedge), a hedge of
a forecasted transaction or of a  rm commitment (cash  ow
hedge), or a hedge of a net investment in a foreign entity.
Changes in the fair value of derivatives that are designated and
qualify as fair value hedges and that are highly e ective, are
recorded in the consolidated income statement, along with any
changes in the fair value of the hedged asset or liability that is
attributable to the hedged risk.
Changes in the fair value of derivatives that are designated
and qualify as cash  ow hedges and that are highly e ective,
are recognised in the hedging reserve. Where the forecasted
transaction or  rm commitment results in the recognition of an
asset or of a liability, the gains and losses previously deferred
in hedging reserve are transferred from hedging reserve and
included in the initial measurement of the cost of the asset or
liability. Otherwise, amounts deferred in hedging reserve are
transferred to the consolidated income statement and classi ed
as revenue or expense in the same periods during which the
hedged  rm commitment or forecasted transaction a ects the
consolidated income statement.
If certain derivative transactions, while providing e ective
economic hedges under the Group’s policies, do not qualify for
hedge accounting under the speci c rules in IAS 39, “Financial
Instruments: Recognition and Measurement”, changes in
the fair value of these derivative instruments are recognised
immediately in the consolidated income statement.
When a hedging instrument expires or is sold, or when a hedge
no longer meets the criteria for hedge accounting under IAS 39,
any cumulative gain or loss existing in the hedging reserve
at that time remains in the hedging reserve and is recognised,
when the committed or forecasted transaction ultimately is
recognised in the consolidated income statement. However, if
a committed or forecasted transaction is no longer expected
to occur, the cumulative gain or loss that was reported in the
hedging reserve is immediately transferred to the consolidated
income statement.
The Group documents at the inception of the transaction
the relationship between hedging instruments and hedged
items, as well as risk management objective and strategy for
undertaking various hedge transactions.
V Borrowings
Borrowings are recognised as the proceeds are received, net of
transaction costs incurred.
W Dividends
Dividends proposed or declared after the balance sheet date are
not recognised as a liability at the balance sheet date.
X Segment Reporting
A segment is a distinguishable component of the Group that
is engaged either in providing products or services (business
segment), or in providing products or services within a
particular economic environment (geographical segment),
which is subject to risks and rewards that are di erent from
those of other segments.
Y Related Parties
For the purposes of these  nancial statements, a party is
considered to be related to the Group if:
(i) the party has the ability, directly or indirectly through one
or more intermediates, to control the Group or exercise
signi cant in uence over the Group in making  nancial
and operating policy decisions, or has joint control over
the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is an associate of the Group or a joint venture in
which the Group is a venturer;
(iv) the party is a member of key management personnel of
the Group or the Group’s parent or a close family member
of such an individual or is an entity under the control, joint
control or signi cant in uence of such individuals;
(v) the party is a close family member of a party referred
to in (i) or is an entity under the control, joint control or
signi cant in uence of such individuals; or
(vi) the party is a post-employment bene t plan which is for
the bene t of employees of the Group or of any entity
that is a related party of the Group.
Close family members of an individual are those family
members who may be expected to in uence, or be in uenced
by, that individual in their dealings with the entity.