Annual Report 2008-2009 - Emirates.com

2. Summary of significant accounting policies (continued)
Emirates’ criteria to account for a derivative financial instrument as a hedge include:
formal documentation of the hedging instruments, hedged items, hedging objective, strategy and basis of measuring effectiveness all
of which are prepared prior to applying hedge accounting; and
documentation showing that the hedge effectiveness is assessed on an ongoing basis and is determined to have been highly effective
in offsetting the risk of the hedged item throughout the reporting period.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective, are recorded in
the consolidated income statement, along with any changes in the fair value of the hedged asset or liability that are attributable to the
hedged risk. This accounting treatment is discontinued when the fair value hedging instrument expires or is sold, terminated or exercised,
or the hedge no longer meets the criteria for hedge accounting.
Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that prove to be highly effective in
relation to the hedged risk, are recognised in the fair value reserve in equity. When the forecasted transaction results in the recognition of
an asset or of a liability, the gains and losses previously deferred in equity are transferred from equity and recognised in profit or loss in
the same period during which the asset or liability affects profit or loss. In all other cases, amounts deferred in equity are transferred to
the consolidated income statement in the period during which the forecasted transaction affects the consolidated income statement and
are presented in the same line item as the gains and losses from hedged items.
When a cash flow hedging instrument expires or is sold, terminated or exercised, or when a hedge no longer meets the criteria for hedge
accounting under IAS 39, any cumulative gain or loss existing in equity at that time is retained in equity and is ultimately recognised in the
consolidated income statement when the forecasted transaction occurs. If a forecasted transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is immediately transferred to the consolidated income statement. The gain or loss on
the ineffective portion is recognised in the consolidated income statement.
Changes in the fair value of derivative instruments that do not qualify for hedge accounting are recognised immediately in the
consolidated income statement.
Inventories
Inventories are stated at the lower of cost and estimated net realisable value. Cost is determined on the weighted average cost basis with
the exception of consumer goods inventory which is determined on a first-in-first-out basis.
Trade receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method,
less provision for impairment. Where there is objective evidence of amounts that are not collectible, a provision is made for the difference
between the carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost
with any difference between the proceeds (net of transaction costs) and the redemption value recognised in the consolidated income
statement over the period of the borrowings using the effective interest method.
Employee end of service benefits
Emirates operates or participates in various end of service benefit plans, which are classified either as defined contribution or defined
benefit plans.
A defined contribution plan is a pension scheme under which Emirates pays fixed contributions and has no legal or constructive
obligation to pay further contributions if the fund does not hold sufficient assets to settle the benefits relating to the employees service in
the current and prior periods. Contributions to the pension fund are charged to the consolidated income statement in the period in which
they fall due.
A defined benefit plan is a plan which is not a defined contribution plan. The liability recognised in the consolidated balance sheet for
defined benefit plan is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets at that
date, together with adjustments for unrecognised past-service costs and unamortised actuarial gains and losses. The defined benefit
obligation is calculated by independent actuaries using the projected unit credit method. The present value of the defined benefit
obligation is determined by discounting estimated future cash outflows using market yields at the balance sheet date of high quality
corporate bonds that have terms to maturity approximating the estimated term of the post-employment benefit obligations.
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