Ryanair 2012 Annual Report Download - page 142

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commodity price, interest rate and foreign exchange rate fluctuations on the Company‘s earnings, cash flows
and equity.
To manage these risks, Ryanair uses various derivative financial instruments, including interest rate
swaps, foreign currency forward contracts and commodity contracts. These derivative financial instruments are
generally held to maturity. The Company enters into these arrangements with the goal of hedging its operational
and balance sheet risk. However, Ryanair‘s exposure to commodity price, interest rate and currency exchange
rate fluctuations cannot be neutralised completely.
Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition,
derivative financial instruments continue to be re-measured to fair value, and changes therein are accounted for
as described below.
The fair value of interest rate swaps is computed by discounting the projected cash flows on the
Company‘s swap arrangements to present value using an appropriate market rate of interest. The fair value of
forward foreign exchange contracts and commodity contracts is determined based on the present value of the
quoted forward price. Recognition of any resultant gain or loss depends on the nature of the item being hedged.
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a
recognised asset or liability or a highly probable forecasted transaction, the effective part of any gain or loss on
the derivative financial instrument is recognised in other comprehensive income (in the cash flow hedging
reserve on the balance sheet). When the hedged forecasted transaction results in the recognition of a non-
financial asset or liability, the cumulative gain or loss is removed from other comprehensive income and
included in the initial measurement of that asset or liability. Otherwise the cumulative gain or loss is removed
from other comprehensive income and recognised in the income statement at the same time as the hedged
transaction. The ineffective part of any hedging transaction and the gain or loss thereon is recognised in the
income statement immediately.
When a hedging instrument or hedge relationship is terminated but the underlying hedged transaction is
still expected to occur, the cumulative gain or loss at that point remains in other comprehensive income and is
recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no
longer expected to take place, the cumulative unrealised gain or loss recognised in other comprehensive income
is recognised in the income statement immediately.
Where a derivative financial instrument hedges the changes in fair value of a recognised asset or
liability or an unrecognised firm commitment, any gain or loss on the hedging instrument is recognised in the
income statement. The hedged item is also stated at fair value in respect of the risk being hedged, with any gain
or loss also being recognised in the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is based on invoiced price on
an average basis for all stock categories. Net realisable value is calculated as the estimated selling price arising
in the ordinary course of business, net of estimated selling costs.
Trade and other receivables and payables
Trade and other receivables and payables are stated on initial recognition at fair value plus any
incremental direct costs and subsequently at amortised cost, net (in the case of receivables) of any impairment
losses, which approximates fair value given the short-dated nature of these assets and liabilities.
Cash and cash equivalents
Cash represents cash held at banks and available on demand, and is categorised for measurement
purposes as ―loans and receivables.‖
Cash equivalents are current asset investments (other than cash) that are readily convertible into known
amounts of cash, typically cash deposits of more than one day but less than three months at the date of purchase.
Deposits with maturities greater than three months are recognised as short-term investments, are categorised as