Cogeco 2012 Annual Report Download - page 54

Consolidated financial statements COGECO CABLE INC. 2012 53
Revenue and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly or
significant transactions occurred during that period, in which case the exchange rates at the date of the transactions are used. Exchange
differences arising from the translation process of foreign operations are recognized as foreign currency translation adjustment in other
comprehensive income and accumulated in equity.
The Corporation applies hedge accounting to foreign currency differences arising between the functional currency of the foreign operation
and the parent entity’s functional currency (Canadian dollars). Foreign currency differences arising on the translation of the long-term debt
designated as a hedge of a net investment in foreign operations are recognized in other comprehensive income to the extent that the
hedge is effective, and are presented within equity in the foreign currency translation adjustment balance. To the extent that the hedge is
ineffective, such differences are recognized in profit or loss. When the hedged part of a net investment is disposed of, the relevant amount
in the cumulative amount of foreign currency translation adjustment is transferred to profit or loss as part of the profit or loss on disposal.
M. FINANCIAL INSTRUMENTS
Classification and measurement
All financial instruments, including derivatives, are included in the statement of financial position initially at fair value when the Corporation
becomes a party to the contractual obligations of the instrument.
Subsequent to initial recognition, non-derivative financial instruments are measured in accordance with their classification as described
below:
 Loans and receivables are financial assets with fixed or determinable payments that are not quoted on an open market. Cash
and cash equivalents and trade and other receivables are classified as loans and receivables. They are measured at amortized
cost using the effective interest method, less any impairment loss;
 Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than
financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the
financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss;
and
 Trade and other payables and loans and borrowings are classified as other liabilities. They are measured at amortized cost
using the effective interest method. Directly attributable transaction costs are added to the initial fair value of financial
instruments except for those incurred in respect of the Term Revolving Facility, which are amortized over the term of the related
financing on a straight-line basis.
Financial assets are derecognized only when the Corporation no longer holds the contractual rights to the cash flows of the asset or when
the Corporation transfers substantially all the risks and rewards of ownership of the financial asset to another entity. Financial liabilities are
derecognized only when the Corporation’s obligations are discharged, cancelled or expire.
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a
currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets
and settle the liabilities simultaneously.
Derivative financial instruments, including hedge accounting
The Corporation uses cross-currency swaps as derivative financial instruments to manage foreign exchange risk related to its foreign
denominated long-term debt. The Corporation does not hold or use any derivative financial instruments for speculative trading purposes.
Derivatives are recognized initially at fair value and related transaction costs are recognized in profit or loss as incurred. Subsequent to
initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. Net receipts or
payments arising from derivative agreements are recognized as financial expense.
On initial designation of the hedge, the Corporation formally documents the relationship between the hedging instrument(s) and hedged
item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be
used to assess the effectiveness of the hedging relationship. The Corporation makes an assessment, both at the inception of the hedge
relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the
changes in the cash flows of the respective hedged items during the period for which the hedge is designated and whether the actual
results of each hedge are within a range of 80-125 percent. For a cash flow hedge of a forecasted transaction, the transaction should be
highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss.