Cathay Pacific 1999 Annual Report Download - page 28

32 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1999
Principal Accounting Policies
1. Basis of accounting
The accounts have been prepared in accordance with the Hong Kong Society of Accountants’ Statements of Standard
Accounting Practice (HK SSAPs) with the exception of the recognition of exchange differences on certain long-term liabilities
as explained in accounting policy 4 below.
2. Basis of consolidation
The consolidated accounts of the Group incorporate the accounts of the Company and its subsidiary companies
made up to 31st December, together with the Group’s share of the results and net assets of its associated companies.
The results of subsidiary companies are included in the consolidated profit and loss account, and the share attributable
to minority interests is deducted from consolidated profit after taxation. Where interests have been bought or sold during
the year, only those results relating to the period of ownership are included in the accounts.
Goodwill arising on consolidation, representing the excess of the cost of subsidiary and associated companies over the
fair value of the Group’s share of the separable net assets at the date of acquisition, is written off to reserves in the year in
which it arises.
On the sale of a subsidiary or associated company, goodwill previously eliminated against reserves is written back to the
profit and loss account.
Minority interests in the consolidated balance sheet comprise the outside shareholders’ proportion of the net assets of
subsidiary companies.
3. Associated companies
Associated companies are those companies, not being subsidiary companies, in which the Group holds a substantial
long-term interest in the equity share capital and over which the Group is in a position to exercise significant management
influence.
The consolidated profit and loss account includes the Group’s share of results of associated companies as reported in their
accounts made up to 31st December. In the consolidated balance sheet, investment in associated companies represents the
Group’s share of net assets other than goodwill.
In the Company’s balance sheet, investment in associated companies is stated at cost less provision for permanent
diminution in value, and loans to those companies.
4. Foreign currencies
Foreign currencies are translated into Hong Kong dollars on the following basis:
(a) for foreign currency denominated monetary assets and liabilities (including currency derivatives), and the balance
sheets of subsidiary and associated companies, at the rates ruling at the balance sheet date; and
(b) for foreign currency transactions entered into during the year, at the market rates ruling at the relevant transaction dates.
Exchange differences arising on the translation of foreign currencies into Hong Kong dollars are reflected in the profit
and loss account except that:
(i) To reduce its exposure to exchange rate fluctuations on future operating cash flows, the Group arranges its
borrowings and leasing obligations in foreign currencies such that repayments can be met by anticipated operating
cash flows. In addition the Group takes out currency derivatives to hedge anticipated cash flows. Any unrealised
exchange differences on these borrowings, leasing obligations, currency derivatives and on related security deposits are
recognised directly in equity via the statement of recognised gains and losses. These exchange differences are included
in the profit and loss account as an adjustment to revenue in the same period or periods during which the hedged
transaction affects the net profit and loss.