Singapore Airlines 2006 Annual Report Download - page 88

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86
Singapore Airlines Annual Report 05/06
2 Accounting Policies (continued)
(ab) Derivative fi nancial instruments and hedging (continued)
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which
the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge.
The documentation includes identifi cation of the hedged item or transaction, the hedging instrument, the nature of the
risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to
changes in the hedged item’s (or transaction’s) cash fl ows attributable or fair values to the hedged risk. Such hedges are
expected to be highly effective in achieving offsetting changes in cash fl ows or fair value, and are assessed on an ongoing
basis to determine that they have been highly effective throughout the fi nancial reporting periods for which they are
designated.
Hedges which meet the criteria for hedge accounting are accounted for as follows:
Cash fl ow hedges
For cash fl ow hedges, the effective portion of the gain or loss on the hedging instrument is recognised directly in the fair
value reserve (Note 14), while the ineffective portion is recognised in the profi t and loss account.
Amounts taken to the fair value reserve are transferred to the profi t and loss account when the hedged transaction
affects profi t or loss, such as when a forecast sale or purchase occurs. If the hedged item is the cost of a non-fi nancial
asset or liability, the amounts taken to the fair value reserve are transferred to the initial carrying amount of the non-
fi nancial asset or liability.
Fair value hedges
For fair value hedges, the gain or loss on the hedging instrument is taken directly to profi t and loss account.
(ac) Segmental reporting
Business segment
The Group’s businesses are organised and managed separately accordingly to the nature of the services provided. The
signifi cant business segments of the Group are airline operations, airport terminal services and engineering services.
Geographical segment
The analysis of revenue by area of original sale from airline operations is derived by allocating revenue to the area in
which the sale was made. Revenue from other operations, which consists principally of airport terminal services and
engineering services, is derived in Singapore and therefore, is not shown.
Assets, which consist principally of fl ight and ground equipment, support the entire worldwide transportation system, are
mainly located in Singapore. An analysis of assets and capital expenditure of the Group by geographical distribution has
therefore not been included.
(ad) FRS and INT FRS not yet effective
The Group has not applied the following FRS and INT FRS that have been issued but are only effective for annual fi nancial
periods beginning on or after 1 April 2006. The Group’s assessment of those standards and interpretations that are
relevant to the Group is set out below:
FRS 107: Financial Instruments: Disclosure
This standard, effective for annual fi nancial periods beginning on or after 1 January 2007, requires quantitative disclosures
of nature and extent of risks arising from fi nancial instruments in addition to the disclosures currently required under FRS
32. Adoption of this standard will result in additional disclosures in the fi nancial statements.
NOTES TO THE FINANCIAL STATEMENTS
31 March 2006