Qantas 2006 Annual Report Download - page 140

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138
Notes to the Financial Statements
for the year ended 30 June 2006
(F) OTHER
AASB 2 Share Based Payments: as permitted by AASB 1 Qantas has not
applied AASB 2 retrospectively to share based payments made prior to 7
November 2002. It therefore does not apply to Entitlements issued under
the Qantas Long-Term Executive Incentive Program (QLTEIP).
AASB 3 Business Combinations: as permitted by AASB 1, Qantas has
applied this standard prospectively. Amortisation of goodwill on acquisition
ceased on 1 July 2004. For the year ended 30 June 2005, goodwill
amortised under previous GAAP was $28.5 million (Qantas: $nil) inclusive
of $13.4 million goodwill amortisation in associate and jointly controlled
entity investments.
AASB 121 Foreign Exchange: as permitted by AASB 1, Qantas has reset the
foreign currency translation reserve to zero on adoption of this standard.
AASB 123 Borrowing Costs: as permitted by AASB 123, Qantas has
continued to capitalise borrowing costs associated with the acquisition of
qualifying assets such as aircraft and terminals.
AASB 127 Consolidations: to comply with the intent of UIG 112, Qantas has
consolidated the Qantas Deferred Share Plan Trust (QDSPT). The QDSPT
holds shares in Qantas on behalf of participants (who are Qantas
employees), which will be classified as Treasury Shares on consolidation.
AASB 136 Impairment of Assets: under previous GAAP, Qantas used
discounted cash flows to assess the value in use of non-current assets.
Qantas tested all non-current assets for impairment on the transition to
A-IFRS regardless of the existence of indicators of impairment. No change
in the carrying value of non-current assets was required on the adoption
of AASB 136.
AASB 138 Intangible Assets: intangible assets with an indefinite life, such
as purchased airport landing slots, are not amortised but are tested for
impairment each reporting period.
Financial Instruments
The transition to AASB 132 Financial Instruments: Disclosure and
Presentation and AASB 139 Financial Instruments: Recognition and
Measurement applied to Qantas effective from 1 July 2005. The Qantas
Group has chosen not to restate comparative information with respect to
AASB 132 and AASB 139.
Qantas risk management practices will continue to be determined on an
economic basis under A-IFRS. It is expected that this approach will result in
some transactions failing the AASB 139 hedge effectiveness criteria from
time to time. If hedging transactions are deemed ineffective under AASB
139, changes in the fair value of these transactions are to be recognised in
the Income Statement as they occur, potentially causing earnings volatility.
Two areas of Qantas’ risk management practice that were significantly
impacted by the requirements of AASB 139 are options and fuel hedging.
Options
AASB 139 allows the option value be separated into its intrinsic and non-
intrinsic components and only the intrinsic value is designated as a hedging
instrument. The intrinsic value of the option must therefore be separated
and designated as the hedge instrument, with all other components of the
option value (being primarily time value and volatility) being fair valued to
the Income Statement over the life of the option.
Options form a significant part of Qantas’ hedging strategy for foreign
exchange revenue, capital expenditure, fuel and interest rate exposures.
The changes in fair value of the non-intrinsic component of an option may
cause periods of volatility in the Income Statement for Qantas.
Aviation Fuel
AASB 139 permits hedge accounting for all financial exposures on a
component basis. Non-financial assets or liabilities such as aviation fuel,
however, are treated differently under the standard. Designation of
components of risk embedded in a commodity exposure are not permitted
under AASB 139. Accordingly, components of aviation fuel expense (for
example, crude oil) may not be hedged independently and achieve hedge
accounting under AASB 139. The total exposure (ie aviation fuel) must be
hedged in its entirety.
Qantas achieved hedge accounting for aviation fuel risk management
transactions in the majority of instances. However, given the high volatility
of fuel markets, the AASB 139 effectiveness test may not be met from time
to time and on these occasions changes in the fair value of hedging
instruments may cause volatility in the Income Statement.
36. Impact of Adopting A-IFRS continued