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KD Holding Group
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2007
2.16 Derivative financial instruments and accounting
point of hedging
be and have been highly effective in offsetting changes
in fair values or cash flows of hedged items. The
Group assesses the success of hedging at the time of
Derivative financial instruments including futures and
forwards, swaps and options are initially recognised at
fair value in the balance sheet. Fair values are obtained
from quoted market prices in active markets, including
recent market transactions, and valuation techniques,
including discounted cash flow models and options
pricing models, as appropriate. All derivatives are
carried as assets when fair value is positive and as
liabilities when fair value is negative.
transaction and in duration of hedging.
Cash flow hedges
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow
hedges is recognised in equity. The gain or loss relating
to any ineffective portion is recognised immediately in
the income statement within net fair value gains on
financial assets at fair value through income.
The method of recognising the resulting fair value
gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the
nature of the item being hedged. The Group uses
derivative financial instruments for hedging of future
cash flows, which are attributable to assets, liabilities
and future business.
From the accounting point of view hedging is used
only under specific conditions.
The Group documents at the inception of the
transaction the relationship between hedging
instruments and hedged items, as well as its risk
management objective 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 expected to
Amounts accumulated in equity are recycled to the
income statement in the periods in which the hedged
item affects profit or loss.
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 the income statement. However, 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.
2.17 Trade Payables
Trade payables are recognised initially at fair value
and subsequently measured at amortised cost using
the effective interest rate method.
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