Cathay Pacific 2005 Annual Report Download - page 43

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Cathay Pacific Airways Limited Annual Report 2005
Principal Accounting Policies
1. Basis of accounting
The accounts have been prepared in accordance
with all applicable Hong Kong Financial Reporting
Standards (“HKFRS”) (which include all applicable
Hong Kong Accounting Standards (“HKAS”),
Hong Kong Financial Reporting Standards and
Interpretations) issued by the Hong Kong Institute
of Certified Public Accountants (“HKICPA”). These
accounts also comply with the requirements of
the Hong Kong Companies Ordinance and the
applicable disclosure provisions of the Rules
Governing the Listing of Securities (the “Listing
Rules”) of The Stock Exchange of Hong Kong
Limited (the “Stock Exchange”).
HKICPA has issued new and revised HKAS and
HKFRS which became effective for accounting
periods beginning on or after 1st January 2005.
The impact of new accounting standards which
lead to changes in the accounting policies are set
out in 2, 4, 6, 8 – 11 and 15.
The measurement basis used is historical cost
modified by the use of fair value for certain
financial assets and liabilities as explained in
accounting policies 8, 10 and 12 below.
The preparation of financial statements in
conformity with HKFRS requires management to
make certain estimates and assumptions which
affect the amounts of fixed assets, intangible
assets, long-term investments, retirement benefit
obligations and taxation included in the financial
statements. These estimates and assumptions
are continually re-evaluated and are based on
management’s expectations of future events
which are considered to be reasonable.
2. Basis of consolidation
The consolidated accounts incorporate the
accounts of the Company and its subsidiaries
made up to 31st December together with the
Group’s share of the results and net assets of its
associates. Subsidiaries are those entities in which
the Group controls the composition of the board of
directors, controls more than half the voting power
or holds more than half of the issued share capital.
The results of subsidiaries are included in the
consolidated profit and loss account. 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 represents the
excess of the cost of subsidiaries and associates
over the fair value of the Group’s share of the net
assets at the date of acquisition. Goodwill arising
on consolidation is recognised as an intangible asset.
In previous years, goodwill was amortised
on a straight line basis over its estimated useful
economic life, not exceeding a period of 20 years.
With the adoption of HKFRS 3 “Business
Combinations” and its transitional provisions,
goodwill is no longer amortised and the accumulated
amortisation brought forward from 2004 has been
eliminated with a corresponding decrease in the cost
of goodwill. The carrying amount of goodwill is
reviewed annually and is written down should any
impairment arise. The effect of this change in the
2005 results is set out in note 28 to the accounts.
On disposal of a subsidiary or associate, goodwill
is included in the calculation of any gain or loss.
Minority interests in the consolidated balance sheet
comprise the outside shareholders’ proportion of
the net assets of subsidiaries. With the adoption of
HKAS 1 “Presentation of Financial Statements”,
minority interests are now treated as a part of
equity rather than as a deduction from net assets
and in the profit and loss account, minority interests
are now disclosed as an allocation of the profit for
the year rather than a deduction from profit. This
change has been applied retrospectively and 2004
comparatives have been restated accordingly.
In the Company’s balance sheet investments in
subsidiaries are stated at cost less any impairment
loss recognised. The results of subsidiaries are
accounted for by the Company on the basis of
dividends received and receivable.