Aer Lingus 2012 Annual Report Download - page 76

Download and view the complete annual report

Please find page 76 of the 2012 Aer Lingus annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 124

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124

FINANCIAL STATEMENTS Aer Lingus Group Plc
ANNUAL REPORT 2012
74
estimate of the expenditure required to settle the present obligation at the statement of financial position date. A liability is built up month on
month, based on actual emissions times a weighted average cost calculated based on, the cost of emissions certificates purchased plus the price
of forward delivery contracts plus the market value at period end of any shortfall to be purchased (if applicable), divided by the expected total
emission units for the compliance period.
2.12 Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair
value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so,
the nature of the item being hedged. The Group designates certain derivatives as either:
• Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges); or
• Hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk
management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge
inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in
fair values or cash flows of hedged items.
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 20. Movements on the hedging reserve in
shareholders’ equity are shown in Note 32. The full fair value of a hedging derivative is classified as a non-current asset or liability when the
remaining maturity of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item
is less than 12 months. Trading derivatives are classified as a current asset or liability.
(a) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together
with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Group only applies fair value
hedge accounting for hedging fixed interest risk on assets and borrowings. The gain or loss relating to the effective portion of interest rate
swaps hedging fixed rate assets and borrowings is recognised in the income statement within “finance expenses”. The gain or loss relating to
the ineffective portion is recognised in the income statement within “Other (gains)/losses – net”. The gain or loss relating to the ineffective
portion of the interest rate swaps is recognised in the income statement within “Other (gains)/losses – net”.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective
interest method is used is amortised to profit or loss over the period to maturity.
(b) Cash flow hedge
Cash flow hedges are principally used to hedge the commodity price risk associated with the Group’s forecasted fuel purchases as well as
certain foreign exchange and interest rate exposures. The effective portion of changes in the fair value of derivatives that are designated and
qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised
immediately in the income statement within “fuel and oil” costs in the case of fuel purchases and “Other (gains)/losses – net” in the case of
the foreign exchange derivatives.
Amounts accumulated in equity are reclassified to the statement of financial position or income statement in the periods when the hedged
item affects the statement of financial position or income statement (for example, when the forecast sale that is hedged takes place). They
are included under the relevant caption in the consolidated financial statements, i.e. fuel hedges in “fuel and oil costs” caption and foreign
exchange hedges within the captions “Other (gains)/losses – net” or “property plant and equipment”.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or
loss existing in equity at that time remains in equity and is recognised when the forecast cash flow arises. When a forecast transaction is no
longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.
Notes to the consolidated financial statements (continued)