Cathay Pacific 1999 Annual Report Download - page 29

33CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1999
Principal Accounting Policies
4. Foreign currencies (continued)
In prior years unrealised exchange differences on hedges of foreign currency operating cash flows were deferred and
carried forward in the balance sheet as deferred items. The introduction of the Statement of Recognised Gains and
Losses under HK SSAP 1 (revised) and developments in International Accounting Standards result in the current best
accounting practice being to reflect such exchange differences directly into equity.
A prior period adjustment of HK$66 million has been credited to reserves as at 1st January 1999. The change has no
impact on the profit and loss account of the Group.
Although this method of accounting complies with International Accounting Standards, it does not comply with
HK SSAP 11 which requires that all such exchange differences are charged to the profit and loss account. The effect
of this departure from HK SSAP 11 is set out in note 22 to the accounts.
(ii) Unrealised differences on net investments in foreign subsidiary and associated companies (including intra-Group
balances of an equity nature) and related long-term liabilities are taken directly to reserves.
The treatment of exchange differences on foreign currency operating cash flow hedges is supported by that element of
International Accounting Standards which deals with accounting for hedge transactions. In the opinion of the Directors,
this treatment fairly reflects the effects of the Group’s foreign currency cash flow hedge arrangements. The matching of
foreign currency cash flows is a key risk management tool for the Group’s airline operations. The appropriateness of
continuing this treatment is assessed regularly, taking into consideration the latest operating cash flow projections of each
currency. The Directors consider that the immediate recognition of all such exchange fluctuations in the profit and loss
account could materially distort year on year results and conclude that the adopted treatment gives a true and fair view of
the financial position, financial performance and cash flow of the Group.
5. Fixed assets and depreciation
Fixed assets are stated at cost less depreciation.
Depreciation of fixed assets is calculated on a straight line basis to write down their cost over their anticipated useful lives
to estimated residual values as follows:
Aircraft and related equipment over 15 to 20 years to residual value of between
7.5% to 20% of cost
Other equipment over 3 to 7 years to nil residual value
Leasehold land and buildings over the period of the lease to nil residual value
Major modifications to aircraft and reconfiguration costs are capitalised as part of aircraft cost and are depreciated over
periods of up to ten years.
The Group’s aircraft depreciation policy is reviewed regularly, taking into consideration factors such as changes in fleet
composition, current and forecast market prices, and technical factors which affect the life expectancy of the fleet.
Where decisions have been made to take aircraft out of service, any impairment in value is recognised by writing down
their carrying value to estimated net recoverable amount.
6. Leased assets
Fixed assets held under lease agreements that give rights equivalent to ownership are treated as if they had been purchased
outright at fair market value, and the corresponding liabilities to the lessor, net of interest charges, are included as obligations
under finance leases.
Amounts payable in respect of finance leases are apportioned between interest charges and reductions of obligations based
on the interest rates implicit in the leases.
Operating lease payments and income are charged and credited respectively to the profit and loss account on a straight
line basis over the life of the related lease.