Qantas 2014 Annual Report Download - page 112

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QANTAS ANNUAL REPORT 2014
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2014
36. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Equity accounted investments
Associates are those entities in which the Qantas Group has significant influence, but not control or joint control, over the financial
and operating policies.
Investments in associates are accounted for under the equity accounting method. The investments are carried at the lower of the
equity accounted amount and the recoverable amount.
The Qantas Group’s share of the associates’ post-acquisition profit or loss is recognised in the Consolidated Income Statement
fromthe date that significant influence commences until the date that significant influence ceases. The Qantas Group’s share of
post-acquisition movements in reserves is recognised in other comprehensive income. The cumulative post-acquisition movements
are adjusted against the carrying value of the investment. Dividends reduce the carrying amount of the equity accounted investment.
When the Qantas Group’s share of losses exceeds its equity accounted carrying value of an associate, the Qantas Group’s carrying
amount is reduced to nil and recognition of further losses is discontinued, except to the extent that the Qantas Group has incurred
legal or constructive obligations or made payments on behalf of an associate.
Unrealised gains and losses arising from transactions with associates are eliminated to the extent of the Group’s interest in the associate.
(B) FOREIGN CURRENCY
Transactions
Transactions in foreign currencies are translated to the functional currency of the Group at the rates of exchange prevailing at the
date of each transaction except where hedge accounting is applied. At balance date, monetary assets and liabilities denominated
in foreign currencies are translated to the functional currency at the rates of exchange prevailing at that date. Resulting exchange
differences are brought to account as exchange gains or losses in the Consolidated Income Statement in the year in which the
exchange rates change. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency
are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated to the functional currency at foreign exchange rates prevailing at the dates the
fair value was determined.
Translation of Foreign Operations
Assets and liabilities of foreign operations, including controlled entities and investments accounted for under the equity method,
are translated to the functional currency at the rates of exchange prevailing at balance date. The income statements of foreign
operations are translated to the functional currency at rates approximating the foreign exchange rates prevailing at the dates of
the transactions. Exchange differences arising on translation are recognised in other comprehensive income and are presented
within equity in the foreign currency translation reserve. When a foreign operation is disposed of such that control, significant
influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to
the Consolidated Income Statement as part of the gain or loss on disposal. When the Group disposes of only part of its interest in
an investment accounted for under the equity method that includes a foreign operation, while retaining significant influence or joint
control, the relevant proportion of the cumulative amount is reclassified to the Consolidated Income Statement.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the
foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of the net
investment in a foreign operation and are recognised in other comprehensive income and are presented within equity in the foreign
currency translation reserve.
(C) DERIVATIVE FINANCIAL INSTRUMENTS
The Qantas Group is subject to foreign currency, interest rate, fuel price and credit risks. Derivative and non-derivative financial
instruments are used to hedge these risks. It is the Qantas Group’s policy not to enter into, issue or hold derivative financial
instruments for speculative trading purposes.
Derivative financial instruments are recognised at fair value both initially and on an ongoing basis. Transaction costs attributable
to the derivative are recognised in the Consolidated Income Statement when incurred. The method of recognising gains and losses
resulting from movements in market prices depends on whether the derivative is a designated hedging instrument and, if so, the
nature of the risk being hedged. The Qantas Group designates certain derivatives as either hedges of the fair value of recognised
assets or liabilities or a firm commitment (fair value hedges), or hedges of highly probable forecast transactions (cash flow hedges).
Gains and losses on derivative financial instruments qualifying for hedge accounting are recognised in the same category in the
Consolidated Income Statement as the underlying hedged item. Changes in underlying market conditions or hedging strategies
could result in recognition in the Consolidated Income Statement of changes in fair value of derivative financial instruments
designated as hedges.