annual report 2009 - Aer Lingus

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58 Financial Statements Aer Lingus Group Plc – Annual Report 2009Notes to the Consolidated Financial Statements [continued]2 Summary of significant accounting policies [continued]2.9 Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legallyenforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle theliability simultaneously.2.10 Impairment of financial assets(a) Assets carried at amortised costThe Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assetsis impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidenceof impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event(or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:• significant financial difficulty of the issuer or obligor;• a breach of contract, such as default or delinquency in interest or principal payments;• the Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concessionthat the lender would not otherwise consider;• it becomes probable that the borrower will enter bankruptcy or other financial reorganisation;• the disappearance of an active market for that financial asset because of financial difficulties; or• observable data indicating that there is a measureable decrease in the estimated future cash flows from a portfolio of financialassets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financialassets in the portfolio, including:(i) adverse changes in the payment status of borrowers in the portfolio; and(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.The Group first assesses whether objective evidence of impairment exists.The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated futurecash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate.The asset’s carrying amount is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan orheld-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effectiveinterest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of aninstrument’s fair value using an observable market price.If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an eventoccurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previouslyrecognised impairment loss is recognised in the consolidated income statement.(b) Assets classified as available-for-saleThe Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financialassets is impaired. For debt securities, the group uses the criteria referred to in (a) above. In the case of equity investments classifiedas available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets areimpaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference betweenthe acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss –is removed from equity and recognised in the separate consolidated income statement. Impairment losses recognised in the separateconsolidated income statement on equity instruments are not reversed through the separate consolidated income statement. If, in asubsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively relatedto an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the separateconsolidated income statement.Impairment testing of trade receivables is described in Note 2.13.
Financial Statements Aer Lingus Group Plc – Annual Report 2009592 Summary of significant accounting policies [continued]2.11 Derivative financial instruments and hedging activitiesDerivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measuredat their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedginginstrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:• hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges); or• hedges or a particular risk associated with a recognised assets or liability or a highly probable forecast transaction (cash flow hedge).The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well asits risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment,both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effectivein offsetting changes in fair values or cash flows of hedged items.The fair values of various derivative instruments used for hedging purposes are disclosed in Note 18. Movements on the hedgingreserve in shareholders’ equity are shown in Note 27. The full fair value of a hedging derivative is classified as a non-current asset orliability when the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability when the remainingmaturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.(a) Fair value hedgeChanges in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement,together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Group onlyapplies fair value hedge accounting for hedging fixed interest risk on assets and borrowings. The gain or loss relating to the effectiveportion of interest rate swaps hedging fixed rate assets and borrowings is recognised in the income statement within ‘finance income’or ‘finance costs’. The gain or loss relating to the ineffective portion is recognised in the income statement within ‘other gains/losses– net’.If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which theeffective interest method is used is amortised to profit or loss over the period to maturity.(b) Cash flow hedgeCash flow hedges are principally used to hedge the commodity price risk associated with the Group’s forecasted fuel purchases as well ascertain foreign exchange and interest rate exposures. The effective portion of changes in the fair value of derivatives that are designatedand qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion isrecognised immediately in the income statement within ‘fuel and oil’ in the case of fuel purchases and ‘other gains/losses – net’ in thecase of the foreign exchange derivatives.Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example,when the forecast purchase that is hedged takes place). They are included under the relevant caption in the consolidated incomestatement, i.e. fuel hedges in the ‘fuel and oil’ caption and foreign exchange hedges in the ‘other gains/losses – net’ caption.When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gainor loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in theincome statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equityis immediately transferred to the income statement.
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annual report 2009
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Financial HighlightsFor the year en
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Chairman’s Statement Aer Lingus G
Page 11 and 12: Operating and Financial Review Aer
Page 13 and 14: Board of Directors Aer Lingus Group
Page 15 and 16: Corporate Social Responsibility Sta
Page 29 and 30: Directors’ Report Aer Lingus Grou
Page 35: Directors’ Report Aer Lingus Grou
Page 38 and 39: 36 Directors’ Report Aer Lingus G
Page 41 and 42: Remuneration Committee Report Aer L
Page 43 and 44: Remuneration Committee Report Aer L
Page 45 and 46: Independent Auditors’ Report Aer
Page 47 and 48: Financial Statements Aer Lingus Gro
Page 59: Financial Statements Aer Lingus Gro
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annual report 2009 - Aer Lingus

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