Singapore Press Holdings annual report 2011 Singapore Press ...

Notes to the
Financial StatementS
August 31, 2011
107
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
(l)
Derivative financial instruments and hedging activities
Derivative financial instruments are used to manage exposure to foreign exchange and interest rate
risks arising from operating, financing and investing activities. Derivative financial instruments taken
up directly by the Group are not used for trading purposes.
A derivative financial instrument is initially recognised at its fair value on the date the derivative
contract is entered into and is subsequently carried at its fair value. The method of recognising the
resulting 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 designates its derivatives for hedging purposes as either hedges of the fair value of
recognised assets or liabilities or a firm commitment (fair value hedge), or hedges of highly probable
forecast transactions (cash flow hedge). The Group has no fair value hedge at balance sheet date.
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 strategies for undertaking various
hedge 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 fair values or cash flows of the hedged items.
The carrying amount of a derivative designated as a hedge is presented as a non-current asset or
liability if the remaining expected life of the hedged item is more than 12 months, and as a current
asset or liability if the remaining expected life of the hedged item is less than 12 months. The fair
value of a trading derivative is presented as a current asset or liability.
(i)
Cash flow hedge
The Group has entered into interest rate swaps that are cash flow hedges for the Group’s
exposure to interest rate risk on its borrowings. These contracts entitle the Group to receive
interest at floating rates on notional principal amounts and oblige the Group to pay interest
at fixed rates on the same notional principal amounts, thus allowing the Group to raise
borrowings at floating rates and swap them into fixed rates.
The fair value changes on the effective portion of these interest rate swaps are recognised in
other comprehensive income and transferred to the income statement in the periods when
the interest expense on the borrowings is recognised in the income statement. The gain or
loss relating to the ineffective portion is recognised immediately in the income statement.
(ii)
Derivatives that do not qualify for hedge accounting
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting
are recognised immediately in the income statement.