Cathay Pacific 1999 Annual Report Download - page 30

Principal Accounting Policies
34 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1999
7. Investments
In prior years long-term investments were stated at cost less provision for any permanent diminution in value. With
the introduction of the Statement of Accounting for Investments in Securities, HK SSAP 24, the Group has adopted the
alternative treatment prescribed therein. Long-term investments are now stated at fair value and any change in fair value is
recognised in the investment revaluation reserve. On disposal or if there is evidence that the investment is impaired, the relevant
cumulative gain or loss on the investment is transferred from the investment revaluation reserve to the profit and loss account.
A prior period adjustment of HK$1,033 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.
Cash deposits and notes placed in respect of certain leasing and financing arrangements are stated at cost while other
investments purchased to meet future leasing obligation repayments are stated at amortised cost.
8. Stocks
Stocks held for consumption are valued at weighted average cost, less any applicable allowance for obsolescence. Stocks
held for disposal are stated at the lower of cost and net realisable value. Net realisable value represents estimated resale price.
9. Funds with investment managers and other liquid investments
Funds with investment managers and other liquid investments are marked to market and any gain or loss arising from
their revaluation is taken to the profit and loss account.
10.Fuel price derivatives
The Group uses fuel derivatives to reduce its exposure to fluctuating fuel costs. Gains and losses on these instruments are
recognised as a component of fuel expense during the period the related fuel is used.
11.Deferred taxation
Provision is made for deferred taxation using the liability method for all material timing differences except where it is
considered probable that no liability will arise in the foreseeable future.
In addition, where initial cash benefits have been received in respect of certain lease arrangements, provision is made for
the future obligation to make taxation payments on behalf of the lessors.
12.Maintenance and overhaul costs
Replacement spares and labour costs for maintenance and overhaul of aircraft are charged to operating profit on
consumption and as incurred respectively.
13.Revenue recognition
Passenger and cargo ticket sales are recognised as revenue when the transportation service is provided. The value of
unflown passenger and cargo sales is recorded as unearned transportation revenue.
14.Retirement benefits
Arrangements for staff retirement benefits vary from country to country and are made in accordance with local regulations
and customs. The significant plans are defined benefit retirement plans and are valued every year using a prospective actuarial
valuation method. The Group profit and loss account is charged each year with actuarially determined contributions based on
such valuation.
15.Frequent-flyer programme
The Group operates a new frequent-flyer programme called Asia Miles through a wholly-owned subsidiary. The
incremental cost of providing travel in exchange for redemption of miles earned by members is accrued in the accounts as an
operating cost and a future liability after allowing for miles which are not expected to be redeemed. As members redeem
awards, the incremental liability is reduced to reflect the release of the outstanding obligations.
16.Related parties
For the purposes of these accounts, parties are considered to be related to the Group if the Group has the ability, directly
or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions,
or vice versa, or where the Group and the party are subject to common control or common significant influence. Related
parties may be individuals or entities.