NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 31 December 2015
77
ANNUAL REPORT 2015
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
2.28 TAXES (CONT’D)
(c)
Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax except:
–
Where the goods and services tax incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the goods and services tax is recognised as part of the cost of acquisition of
the asset or as part of the expense item as applicable; and
–
Receivables and payables that are stated with the amount of goods and services tax included.
The net amount of goods and services tax recoverable from, or payable to, the taxation authority is included as part
of receivables or payables in the balance sheet.
2.29 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
Initial recognition and subsequent measurement
The Group uses derivative financial instruments such as forward currency contracts, interest rate swaps and forward
commodity contracts, to manage their foreign currency risks, interest rate risks and commodity price risks respectively.
Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is
entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is
positive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the
effective portion of cash flow hedges, which is recognised in other comprehensive income.
For the purpose of hedge accounting, hedges are classified as:
–
Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an
unrecognised firm commitment
–
Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk
associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk
in an unrecognised firm commitment
–
Hedges of a net investment in a foreign operation
At the inception of a hedge relationship, the Group formally designate and document the hedge relationship to which the
Group wishes to apply hedge accounting and the 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 effectiveness of changes in the hedging instrument’s fair value in offsetting the
exposure to changes 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 accounting will be discontinued in a situation where a derivative, which has been designated as a hedging instrument,
is novated to effect clearing within a central counterparty as a result of laws or regulation, if specific conditions are met (in
this context, a novation indicates that parties to a contract agree or replace their original counterparty with a new one). Any
change to the fair value of the derivative designated as a hedging instrument arising from the novation should be included
in the assessment and measure of hedge effectiveness with retrospective application.
