Telstra 2010 Annual Report Download - page 121

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
(i) In prior years, we recognised impairment losses relating to the
value of our investments in jointly controlled and associated
entities, and other entities based on the value in use calculation.
(ii) We have recognised an impairment loss of $168 million relating
to impairment of goodwill in CSL New World. Refer to note 21 for
further details regarding impairment.
(iii) We use our cross currency and interest rate swaps as fair value
hedges to convert our foreign currency borrowings into Australian
dollar floating rate borrowings.
In the current year, we have seen our borrowing margins contract
reflecting an improvement in financial markets, resulting in a
partial reversal of previously recognised gains represented by the
$26 million unrealised loss for the current year (2009: gain of $61
million). In addition to the contraction in Telstra’s borrowing
margins, the following factors have also contributed to the net
revaluation loss of $26 million:
• an increase in Australian base market rates as at 30 June
valuation date;
• a reduction in the number of future interest flows as we
approach maturity of the financial instrument; and
• discount factor unwinding as the time to maturity shortens.
It is important to note that in general it is our intention to hold our
borrowings and associated derivative instruments to maturity.
Accordingly, unrealised revaluation gains and losses will be
recognised in our finance costs over the life of the financial
instrument and will progressively unwind to nil at maturity.
Refer to note 18 for further details regarding our hedging
strategies.
(iv) A combination of the following factors has resulted in a net
unrealised gain of $36 million (2009: gain of $222 million)
associated with financial instruments that are either not in a
designated hedge relationship or were previously designated in a
hedge relationship and no longer qualify for hedge accounting:
• the valuation impacts described at (iii) above for fair value
hedges;
• the different measurement bases of the borrowings (measured
at amortised cost) and the associated derivatives (measured at
fair value); and
• a net loss of $21 million for the amortisation impact of
unwinding previously recognised gains on those borrowings that
were de-designated from hedge relationships.
Notwithstanding that these borrowings and the related derivative
instruments do not satisfy the requirements for hedge accounting,
they are in effective economic relationships based on contractual
face value amounts and cash flows over the life of the transaction.
7. Expenses (continued)