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Tenaga Nasional Berhad 220 Annual Report 2009Notes to the financial statements (Cont’d.)31 August 20092 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)(ac) Foreign currencies (Cont’d.)(iii)Group companiesThe results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have functionalcurrencies different from the presentation currency are translated into the presentation currency as follows:• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;• income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonableapproximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses aretranslated at the rate on the dates of the transactions); and• all resulting exchange differences are recognised as a separate component of equity.On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders’equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in theincome statement as part of the gain or loss on sale.Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entityand translated at the closing rate.The principal closing rates used in translation of foreign currency amounts were as follows:Foreign currency 2009 2008rMRM1 US Dollar 3.5255 3.3937100 Japanese Yen 3.7540 3.12501 Sterling Pound 5.7434 6.2067100 Pakistani Rupee 4.2456 4.45001 EURO 5.0538 5.0043(ad) Financial instruments(i)DescriptionFinancial instruments carried on the balance sheet include cash and bank balances, investments, receivables, payables, leases and borrowings.The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.The Group and the Company are also parties to financial instruments that manage exposure to fluctuations in foreign currency exchange andinterest rate. These financial instruments, which mainly comprise foreign currency forward contracts, cross currency swap contracts andinterest rate swap contracts, are not recognised in the financial statements. Derivative financial instruments are used in the Group and theCompany’s risk management of foreign currency and interest rate risk exposure of its financial liabilities.
Tenaga Nasional Berhad 221 Annual Report 20092 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)(ad) Financial instruments (Cont’d.)(ii)Financial instruments not recognised on the balance sheetForeign currency forward contractsThe Group enters into foreign currency forward contracts to protect the Group from movements in exchange rates by establishing the rate atwhich a foreign currency asset or liability will be settled.Exchange gains and losses on contracts are recognised in the income statement at time of settlement.Cross currency swap contractsCross currency swaps are entered into to manage exposure to movements in exchange rates by establishing the currency at which a foreigncurrency liability will be settled.The notional principal of these contracts are off balance sheet. Any differential in terms of exchange gains or losses are recognised in theincome statement in the same period as the exchange differences on the underlying hedged items.Currency optionsCurrency options are designed to manage the Group’s exposure to protect the Group from movements in foreign currency. The notionalprincipal of the contract is off balance sheet. The premium paid is expensed to the income statement when it is incurred. Gains or losses onearly termination of currency options or on repayment of the borrowing are taken to the income statement.Interest rate swap contractsInterest rate swaps, collars and caps agreements are designed to manage the Group’s exposure to protect the Group from movements ininterest rates. The notional principal of these contracts are off balance sheet. Any differential to be paid or received on an interest rate swapcontract is recognised as a component of interest income or expense over the period of the contract. Gains and losses on early terminationof interest rate swaps or on repayment of the borrowing are taken to the income statement.(iii)Fair value estimation for disclosure purposesIn assessing the fair value of financial instruments, the Group and the Company make certain assumptions and apply the discounted cashflow method to discount future cash flows to determine the fair value of financial instruments. The fair values of financial liabilities areestimated by discounting future cash flows at current market interest rate available to the Group and the Company.Fair value of publicly traded derivatives and securities is based on quoted market prices at balance sheet date whereas the fair value offoreign currency forward contracts is calculated using spot rates, as published by Reuters, at balance sheet date.The fair value of cross currency swaps and currency options are calculated as the present value of the estimated future cash flows and/orvaluation from the banks.The carrying amount for financial assets and liabilities with a maturity of less than one year are assumed to approximate theirfair values.
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years of nation building
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60years ofLighting Up LivesINDUSTRI
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60years ofLighting Up LivesDIVERSIF
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years of serving Malaysians
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Lighting up LivesThis year’s cove
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Tenaga Nasional Berhad 15 Annual Re
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Symphony Share Registrars Sdn. Bhd.
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