Cathay Pacific 2004 Annual Report Download - page 40

Principal Accounting Policies
36 Cathay Pacific Airways Limited 2004 Annual Report
9. DEFEASANCE OF LONG-TERM LIABILITIES
Where long-term liabilities have been defeased
by the placement of security deposits, those
liabilities and deposits (and income and charge
arising therefrom) are netted off in order
to reflect the overall commercial effect of the
arrangements. Such netting off has been
effected where a right is held by the Group
to insist on net settlement of the liability and
deposit including in all situations of default and
where that right is assured beyond doubt.
10. RETIREMENT BENEFITS
Arrangements for staff retirement benefits vary
from country to country and are made in
accordance with local regulations and customs.
The retirement benefit obligation in respect
of defined benefit retirement plans refers to
the obligation less the fair value of plan assets
where the obligation is calculated by estimating
the present value of the expected future
payments required to settle the benefit that
employees have earned using the projected unit
credit method. Actuarial gains and losses are
not recognised unless their cumulative amounts
exceeds either 10% of the present value of the
defined benefit obligation or 10% of the fair value
of plan assets whichever is greater. The amount
exceeding this corridor is recognised on a straight
line basis over the expected average remaining
working lives of the employees participating
in the plans.
11. DEFERRED TAXATION
Provision for deferred tax is made on all
temporary differences.
Deferred tax assets relating to unused tax
losses and deductible temporary differences are
recognised to the extent that it is probable that
future taxable profits will be available against
which these unused tax losses and deductible
temporary differences can be utilised.
In addition, where initial cash benefits have been
received in respect of certain lease arrangements,
provision is made for the future obligation to
make tax payments.
12. STOCK
Stock held for consumption is valued either at
cost or weighted average cost less any applicable
allowance for obsolescence. Stock held for
disposal is stated at the lower of cost and net
realisable value. Net realisable value represents
estimated resale price.
13. FUNDS WITH INVESTMENT MANAGERS AND
OTHER LIQUID INVESTMENTS
Funds with investment managers and other liquid
investments are valued on a mark to market
basis and any gain or loss arising from the
revaluation is taken to the profit and loss account.
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.
14. REVENUE RECOGNITION
Passenger and cargo 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. Income from catering
and other services is recognised when the
services are rendered.
15. FUEL PRICE DERIVATIVES
Fuel derivatives are used to reduce exposure to
fluctuating fuel prices. Gains and losses on these
instruments are recognised upon contract expiry
as a component of fuel expense during the
period the related fuel is used.