Cathay Pacific 2006 Annual Report Download - page 49

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Cathay Pacific Airways Limited Annual Report 2006
Principal Accounting Policies
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.
6. Leased assets
Fixed assets held under lease agreements that
give rights equivalent to ownership are treated
as if they had been purchased outright at fair
market value and the corresponding liabilities to
the lessor, net of interest charges, are included as
obligations under finance leases.
Amounts payable in respect of finance leases
are apportioned between interest charges and
reductions of obligations based on the interest
rates implicit in the leases.
Operating lease payments and income are
charged and credited respectively to the profit and
loss account on a straight line basis over the life of
the related lease.
7. Intangible assets
Intangible assets comprise goodwill arising on
consolidation and expenditure on computer system
development. The accounting policy for goodwill is
outlined in accounting policy 2 on page 45.
Expenditure on computer system development
which gives rise to economic benefits is
capitalised as part of intangible assets and is
amortised on a straight line basis over its useful
life not exceeding a period of four years.
8. Financial assets
Other long-term receivables, bank and security
deposits, trade and other short-term receivables
are categorised as loans and receivables and are
stated at amortised cost less impairment loss.
Where long-term investments held by the Group
are designated as available-for-sale financial
assets, these investments are stated at fair value.
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 cumulative gain or loss on the investment
is transferred from the investment revaluation
reserve to the profit and loss account.
Funds with investment managers and other liquid
investments which are managed and evaluated
on a fair value basis are designated as at fair value
through profit and loss.
The accounting policy for derivative financial
assets is outlined in accounting policy 10.
Financial assets are recognised or derecognised
by the Group on the date when the purchase or
sale of the assets occurs.
Interest income from financial assets is recognised
as it accrues while dividend income is recognised
when the right to receive payment is established.
9. Financial liabilities
Long-term loans, finance lease obligations and trade
and other payables are stated at amortised cost.
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 occurs where there is a current
legally enforceable right to set off the liability and
the deposit and the Group intends either to settle
on a net basis or to realise the deposit and settle
the liability simultaneously. For transactions