Cathay Pacific 2000 Annual Report Download - page 37

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CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 2000 35
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.
In the Company’s balance sheet, investment in associated companies is stated at cost less any
provision for diminution in value, and loans to those companies. A provision for diminution in
value recognises a decline, other than temporary, in the value of the investment.
4. Foreign currencies
Foreign currency transactions entered into during the year are translated into Hong Kong dollars
at the market rates ruling at the relevant transaction dates whilst the following items are
translated at the rates ruling at the balance sheet date:
(i) foreign currency denominated monetary assets and liabilities (including currency derivatives).
(ii) the balance sheets and results of foreign subsidiary and associated companies.
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.
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 immediately. 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.
Principal Accounting Policies