Full Annual Report - Inchcape

Section
Three
Financial
statements
23 Financial instruments continued
g. Hedging activities
Effective 1 January 2009, the Group adopted the amendment to IFRS 7 for financial instruments that are measured in the consolidated
statement of financial position at fair value. This requires disclosure of fair value measurements by level for the following fair value
measurement hierarchy:
• quoted prices in active markets (level 1);
• inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly (level 2); or
• inputs for the asset or liability that are not based on observable market data (level 3).
The following table presents the Group’s assets and liabilities that are measured at fair value:
2009
Assets
Derivatives used for hedging – 91.0 91.0
Available for sale financial assets 18.5 – 18.5
18.5 91.0 109.5
Liabilities
Derivatives used for hedging – 21.8 21.8
Level 1 represents the fair value of financial instruments that are traded in active markets and is based on quoted markets prices at the
end of the reporting period.
The fair value of financial instruments that are not traded in an active market (level 2) is determined by using valuation techniques
which include the present value of estimated future cash flows. These valuation techniques maximise the use of observable market
data where it is available and rely as little as possible on entity specific estimates.
Derivative financial instruments are carried at their fair values. The fair value of forward foreign exchange contracts and foreign
exchange swaps represents the difference between the value of the outstanding contracts at their contracted rates and a valuation
calculated using the spot rates of exchange prevailing at 31 December 2009.
The Group’s derivative financial instruments comprise the following:
2009
£m
Level 1
£m
Assets
2008
£m
Level 2
£m
2009
£m
Total
£m
Liabilities
2008
£m
Cross currency interest rate swap 84.7 155.6 – –
Forward foreign exchange contracts 6.3 151.3 (21.8) –
91.0 306.9 (21.8) –
The ineffective portion recognised in the consolidated income statement that arises from fair value hedges amounts to a gain of £0.9m
(2008 – a gain of £2.8m). The ineffective portion recognised in the consolidated income statement that arises from cash flow hedges
amounts to a gain of £0.6m (2008 – £0.4m). There was no ineffectiveness to be recorded from hedges of net investments.
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