Cathay Pacific 2014 Annual Report Download - page 102

Cathay Pacific Airways Limited
100 Principal Accounting Policies
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 profit or loss on a straight line basis
over the life of the related lease.
With respect to operating lease agreements, where the
Group is required to return the aircraft with adherence to
certain maintenance conditions, provision is made during
the lease term.This provision is based on the present value
of the expected future cost of meeting the maintenance and
non-maintenance return condition, having regard to the
current fleet plan and long-term maintenance schedules.
7. Intangible assets
Intangible assets comprise goodwill arising on
consolidation, acquisition of computer software licences
and others. The accounting policy for goodwill is outlined in
accounting policy 2 on pages 98 and 99.
Expenditure on computer software licences and others
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 to ten 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. Fair value is based on
quoted market prices at the end of the reporting period
without any deduction for transaction costs. Fair values for
the unquoted equity investments are estimated using an
appropriate valuation model. 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
reclassified from the investment revaluation reserve to
profit or loss.
Cash and cash equivalents comprise cash at bank and on
hand, demand deposits with banks and other financial
institutions, and short-term, highly liquid investments that
are readily convertible into known amounts of cash and
which are subject to an insignificant risk of changes in value,
having been within three months of maturity at acquisition.
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
or loss.
Impairment is recognised when the recover ability of the
debt is in doubt resulting from financial difficulty of a
customer or the debt in dispute.
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.
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 or 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 proprietary
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 “Financial Instruments:
Recognition and Measurement” 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 profit or loss as an adjustment to revenue, net
finance charges or fuel expense in the same period or
periods during which the hedged transaction affects
profit or loss.
(b) the ineffective portion of the fair value change is
recognised in profit or loss immediately.
Derivatives which do not qualify as hedging instruments
under HKAS 39 “Financial Instruments: Recognition and
Measurement” are accounted for as held for trading financial
instruments and any fair value change is recognised in profit
or loss immediately.