Singapore Airlines 2009 Annual Report Download - page 116

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NOTES TO THE FINANCIAL STATEMENTS
31 March 2009
2 Accounting Policies (continued)
(ag) Claims and liquidated damages
Claims for liquidated damages, in relation to a loss of income, are recognised in the profi t and
loss account when a contractual entitlement exists, the amount can be reliably measured and receipt
is virtually certain. When the claims do not relate to a compensation for loss of income, the amounts
are taken to the balance sheet as deferred credit, included under deferred account, as a reduction
to the cost of the assets when the assets are capitalised and also for future reduction of operating
lease expenses.
(ah) Derivative fi nancial instruments and hedging
The Group uses derivative fi nancial instruments such as forward currency contracts, foreign currency
option contracts, cross currency swap contracts, interest rate swap contracts, interest rate cap contracts,
jet fuel option contracts, jet fuel swap contracts and gasoil swap contracts to hedge its risks associated
with foreign currency, interest rate and jet fuel price fl uctuations. Such derivative fi nancial instruments
are initially recognised at fair value on the date on which a derivative contract is entered into, and are
subsequently re-measured at fair value.
Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge
accounting are taken directly to the profi t and loss account.
The fair value of forward currency contracts is determined by reference to current forward prices for
contracts with similar maturity profi les. The fair values of foreign currency option contracts, interest rate
swap contracts and interest rate cap contracts are determined by reference to valuation reports provided
by counterparties. The fair values of cross currency swap contracts and jet fuel swap contracts are
determined by reference to market values for similar instruments. The fair value of jet fuel option contracts
is determined by reference to available market information and option valuation methodology.
The fair values of gasoil and regrade swap contracts are also determined by reference to available
market information and are the mark-to-market values of these swap contracts. As the Group hedges
in InterContinental Exchange (“ICE”) gasoil and Mean of Platts Singapore Jet Kerosene (“MOPS”) jet-fuel-
ICE gasoil regrade, the ICE gasoil futures contract price and the MOPS price are used as the mark-to-
market prices.
The Group also set aside USD deposits to match forecast capital expenditure requirements. To create
a USD denominated asset in the balance sheet to match against the expected USD liability for capital
expenditure, the Group accumulates USD over a period of 10 months in advance of forecast aircraft
payments. The exchange gains and losses of the USD held would be recognised in the carrying value
of the aircraft.