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the difference between the carrying amount of the liability and the
consideration paid is recognised in the income statement.
The Group uses derivative financial instruments such as forward
currency contracts, interest rate swaps, cross currency interest
rate swaps and, to a small extent, interest rate options to hedge its
risks associated with interest rate and foreign currency fluctuations.
The Group does not use derivative financial instruments for trading
purposes. The derivative financial instruments are measured at fair value.
Any gains or losses arising from changes in fair value on derivatives
that are not cash flow hedges or hedges of net investments are
recognised in the income statement as financial income or expense.
Accounting for cash flow hedges and hedges of net investments are
Derivatives embedded in other financial instruments or other nonfinancial host contracts are treated as separate derivatives when
their risk and economical characteristics are not closely related
to those of the host contract and the host contract is not carried
at fair value with unrealised gains or losses recognised in the
income statement. Currency derivatives embedded in committed
purchase or sales contracts are not bifurcated and recognised at
fair value if the contract requires payments denominated in either
the functional currency of one of the parties to the contract or in
a commonly used currency for purchase or sales in the relevant
Derivatives are recognised without any offsetting; as assets when
the value is positive and as liabilities when the value is negative, as
long as the Group has no intention or legally enforceable right to
settle the contracts net.
The Group applies hedge accounting for hedges that meet the
criteria for hedge accounting. The Group has cash flow hedges, fair
value hedges and hedges of net investments in foreign operations. At the inception of each hedge relationship, the Group designates
and documents the hedge accounting relationship, risk
management objective and strategy for undertaking the hedge. The
documentation includes identification of the hedging instrument, the
hedged item or transaction, the nature of the risk being hedged and
how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to change in the hedged item’s fair value
or cash flows attributable to the hedged risk. Such hedges are
expected to be highly effective in achieving offsetting changes in
fair value or cash flows and are assessed on an ongoing basis to
determine that they actually have been highly effective throughout
the financial reporting periods for which they were designated.
Hedge relationships that meet the requirements for hedge
accounting are accounted for in the Group’s consolidated financial
statements as follows:
Cash flow hedges
The Group uses cash flow hedges primarily to hedge interest rate
risk of variable-rate interest-bearing liabilities and highly probable
transactions such as purchase of a foreign entity and significant
investments in foreign currency. A cash flow hedge is a hedge of the exposure to variability in cash
flows that is attributable to a particular risk associated with a
recognised asset or liability or a highly probable forecast transaction
that could affect the income statement. The effective portion of the
gain or loss on the hedging instrument is recognised directly in other
comprehensive income, while the ineffective portion is recognised in
the income statement.
Amounts recognised directly in other comprehensive income are
transferred to the income statement when the hedged transaction
affects the income statement, such as when hedged financial
income or financial expense is recognised or when a forecast sale or
purchase occurs. If a hedge of a forecast transaction subsequently
results in the recognition of a non-financial asset or liability, the
gain or loss on the hedge instrument that was recognised in other
comprehensive income is reclassified to the income statement in the
same period or periods during which the asset acquired or liability
assumed affects the income statement.
If the forecast transaction is no longer expected to occur, amounts
previously recognised in other comprehensive income are
transferred to the income statement. If the hedging instrument
expires or is sold, terminated or exercised without replacement
or rollover, or if its designation as a hedge is revoked, amounts
previously recognised in other comprehensive income, in the period
the hedge was effective, remain in other comprehensive income
until the hedged forecasted transaction occurs.
Fair value hedges
The Group uses fair value hedges primarily to hedge interest rate
risk of fixed-rate interest-bearing liabilities and currency risk for
interest-bearing liabilities. Fair value hedges are hedges of the Group’s exposure to changes in
the fair value of a recognised asset or liability or an unrecognised
firm commitment, or an identified portion of such, that is attributable
to a particular risk and could affect...
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- Spring '14