Cathay Pacific 2008 Annual Report Download - page 50

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Principal Accounting Policies
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 46.
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.
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 or
designated as at fair value through profit and loss.
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 entered into before
2005, such netting off occurs where there is a right to
insist on net settlement of the liability and the deposit
including situations of default and where that right is
assured beyond doubt, thereby reflecting the
substance and economic reality of the transactions.
The accounting policy for derivative financial liabilities
is outlined in accounting policy 10.
Financial liabilities are recognised or derecognised
when the contracted obligations are incurred or
extinguished.
Interest expenses incurred under financial liabilities
are calculated and recognised using the effective
interest method.
10. Derivative financial instruments
Derivative financial instruments are used solely to
manage exposures to fluctuations in foreign exchange
rates, interest rates and jet fuel prices in accordance
with the Group’s risk management policies. The
Group does not hold or issue derivative financial
instruments for trading purposes.
All derivative financial instruments are recognised at
fair value in the statement of financial position. Where
derivative financial instruments are designated as
effective hedging instruments under HKAS 39 and
hedge exposure to fluctuations in foreign exchange
rates, interest rates or jet fuel prices, any fair value
change is accounted for as follows:
(a) the portion of the fair value change that is
determined to be an effective cash flow hedge is
recognised directly in equity via the statement of
changes in equity and is included in the profit and
loss as an adjustment to revenue, net finance
charges or fuel expense in the same period or
periods during which the hedged transaction
affects the profit and loss.
(b) the ineffective portion of the fair value change is
recognised in the profit and loss immediately.
Derivatives which do not qualify as hedging
instruments under HKAS 39 are accounted for as held
for trading financial instruments and any fair value
change is recognised in the profit and loss
immediately.
48 Cathay Pacific Airways Limited Annual Report 2008