Aer Lingus 2012 Annual Report Download - page 80

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FINANCIAL STATEMENTS Aer Lingus Group Plc
ANNUAL REPORT 2012
78
(a) Revenues
Amounts in respect of transportation of passengers and cargo (and related recoverable charges and fees) are deferred and are not recognised
as revenue until the point at which the passenger(s)/cargo has flown. The value of bookings made for which transportation has not been
provided at the statement of financial position date is included in “trade and other payables” under the caption of “ticket sales in advance”.
Expired tickets are recognised as revenue using estimates based on historical trends.
Ancillary revenues are recognised in the income statement in the period in which the associated services are provided. In the case of fees
charged for bags and seat selection, this is when the passenger has flown. Fees charged for any changes to flight tickets are recognised as
revenue immediately.
Other revenues are recognised in the income statement in the period in which the associated services are provided. Revenues arising from
the Group’s franchise agreement with Aer Arann are recognised on a net (as agent) basis with the agreed franchise fee reported within “Other
revenue”. Revenues arising from the Group’s frequent flyer programme are also reported within other revenue and are recognised as revenue
when the related frequent flyer points are redeemed.
(b) Interest income
Interest income is accrued on a time basis, by reference to the principal outstanding using the effective interest rate applicable.
(c) Dividend income
Dividend income is recognised when the right to receive payment is established.
2.25 Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments
made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over
the period of the lease.
Leases of aircraft where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are
capitalised at the lease’s commencement at the lower of the fair value of the leased aircraft and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant interest rate on the finance balance
outstanding. The corresponding rental obligations, net of finance charges, are included in “finance lease obligations”. The interest element of the
finance expense is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining
balance of the liability for each period. Certain lease contracts contain interest rate swaps that are closely related to the underlying financing and
as such, are not split out and accounted for as an embedded derivative.
2.26 Exceptional items
Exceptional items are material non-recurring items that derive from events or transactions that fall within the ordinary activities of the Group
and which individually or, if of a similar type, in aggregate, are separately disclosed by virtue of their size or incidence. Such items may include
business repositioning costs, takeover defence costs, profit or loss on disposal of significant items of property, plant and equipment, litigation costs
and settlements, profit or loss on disposal of investments and impairment of assets, or once off costs or credits where separate identification is
important to gain an understanding of the financial statements.
Judgement is used by the Group in assessing the particular items which should be disclosed in the income statement and related notes as
exceptional items.
3 Financial risk management
3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including exchange rate, commodity price and interest rate risk), credit
risk and liquidity risk. The Group’s risk management programme focuses on the unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
Financial risk management is carried out by a central treasury department (Group treasury) under policies approved by the Board of Directors.
Group treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board provides written
principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit
risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.
Notes to the consolidated financial statements (continued)