Cathay Pacific 2007 Annual Report Download - page 47

Principal Accounting Policies
12. 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.
13. 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.
14. 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.
15. 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.
16. Maintenance and overhaul costs
Replacement spares and labour costs for
maintenance and overhaul of aircraft are charged to
the profit and loss account on consumption and as
incurred respectively.
17. Frequent-flyer programme
The Company operates a frequent-flyer programme
called Asia Miles (the “programme”). The incremental
cost of providing awards in exchange for redemption
of miles earned by members is accrued as an
operating cost and a liability after allowing for miles
which are not expected to be redeemed. As
members redeem their miles the liability is reduced
to reflect the reduction in the outstanding obligation.
The Company sells miles to participating partners in
the programme. That portion of revenue earned from
miles sold which is expected to be redeemed on the
Group’s flights is deferred and amortised to the profit
and loss account over the expected redemption
period.
18. Related parties
Related parties are considered to be related to the
Group if the party has the ability, directly or indirectly,
to control the Group or exercise significant influence
over the Group in making financial and operating
decisions or where the Group and the party are
subject to common control. The Group’s associates,
joint ventures and key management personnel are
also considered to be related parties of the Group.
Cathay Pacific Airways Limited Annual Report 2007 45