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2.
Summary of significant accounting policies (cont’d.)
2.14 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount presented in the statements of financial position when there is a
legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset
and settle the liability simultaneously.
2.15 Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value.
The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument,
and the nature of the item being hedged. Derivatives that do not qualify for hedge accounting are classified as held for trading
and accounted for in accordance with the accounting policy set out in Note 2.12. The Group designates certain derivatives as
hedges of a particular risk associated with a recognised asset 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 as its riskmanagement 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 effective in offsetting changes in cash flows of hedged items.
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 21 to the financial statements.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is
more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualified as cash flow hedges is
recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the
income statement within ‘finance income/(costs)’ and ‘foreign exchange losses’ (Note 8(d)).
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 sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate
swaps hedging variable rate borrowings is recognised in profit or loss and presented separately after net operating profit.
When the forecast transaction that is hedged results in the recognition of a nonfinancial asset (for example, inventory or
property, plant and equipment), the gains and losses previously deferred in equity are transferred from equity and included in
the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in the
case of inventory, or in depreciation in the case of property, plant and equipment.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is
ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss
that was reported in equity is immediately transferred to the income statement within ‘finance income/(costs)’ and ‘foreign
exchange losses’ (Note 8(d)).
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AirAsia Berhad
REPORTS AND FINANCIAL STATEMENTS