Cathay Pacific 2005 Annual Report Download - page 44

42 Cathay Pacific Airways Limited Annual Report 2005
3. Associates
Associates are those companies, not being
subsidiaries, 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 associates as
reported in their accounts made up to 31st
December. In the consolidated balance sheet
investments in associates represent the Group’s
share of net assets and loans to those companies.
In the Company’s balance sheet, investments in
associates are stated at cost less any impairment
loss recognised and loans to those companies.
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:
(a) foreign currency denominated financial assets
and liabilities.
(b) the balance sheets of foreign subsidiaries
and associates.
Exchange differences arising on the translation of
foreign currencies into Hong Kong dollars are
reflected in the profit and loss account except that:
(a) unrealised exchange differences on foreign
currency denominated financial assets and
liabilities, as described in accounting policies 8,
9 and 10 below, that qualify as effective cash
flow hedge instruments under HKAS 39
“Financial Instruments: Recognition and
Measurement” are recognised directly in equity
via the Statement of Changes in Equity. 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 item affects the profit and loss.
(b) unrealised differences on net investments in
foreign subsidiaries and associates (including
intra-Group balances of an equity nature) and
related long-term liabilities are taken directly
to equity.
5. Fixed assets and depreciation
Fixed assets are stated at cost less accumulated
depreciation and impairment.
Depreciation of fixed assets is calculated on a
straight line basis to write down cost over
anticipated useful lives to estimated residual value
as follows:
Passenger aircraft over 20 years to residual value
of between 0% to 10% of cost
Freighter aircraft over 20 – 27 years to residual
value of between 0% to 20%
of cost
Other equipment over 3 – 7 years to nil
residual value
Buildings over the lease term of the
leasehold land 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 10 years.
The depreciation policy and the carrying amount of
fixed assets are reviewed annually taking into
consideration factors such as changes in fleet
composition, current and forecast market values
and technical factors which affect the life
expectancy of the assets. Any impairment in value
is recognised by writing down the carrying amount
to estimated recoverable amount which is the
higher of the value in use (the present value of
future cash flows) and the net selling price.
Principal Accounting Policies