Annual Report 2012, PDF - Axiata Group Berhad - Investor Relations

NOTES TO THEFINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012 (CONTINUED)3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(i) Derivative financial instruments and hedging activities (continued)(b) Cash flow hedgeThe effective portion of changes in the fair value of derivatives that are designated and qualify as cashflow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffectiveportion is recognised immediately in the profit or loss within ‘other gains/(losses) – net’.Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged itemaffects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or lossrelating to the effective portion of interest rate swaps hedging variable rate borrowings is recognisedin the profit or loss within ‘finance costs’. The gain or loss relating to the ineffective portion isrecognised in the profit or loss within ‘other gains/(losses) – net’. However, when the forecasttransaction that is hedged, results in the recognition of a non-financial asset, the gains and lossespreviously deferred in equity are transferred from equity and included in the initial measurement of thecost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in the case ofinventory or in depreciation in the case of PPE.When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedgeaccounting, any cumulative gain or loss existing in equity at that time remains in equity and isrecognised when the forecast transaction is ultimately recognised in the profit or loss. When a forecasttransaction is no longer expected to occur, the cumulative gain or loss that was reported in equity isimmediately transferred to the profit or loss within ‘other gains/(losses) – net’.(c) Net investment hedgeHedges of net investments in foreign operations are accounted for similarly to cash flow hedges.Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognisedin other comprehensive income. The gain or loss relating to the ineffective portion is recognisedimmediately in the profit or loss within ‘other gains/(losses) – net’.Gains and losses accumulated in equity are included in the profit or loss when the foreign operation ispartially disposed of or sold.(j)InventoriesInventories are stated at lower of cost and net realisable value.Cost is determined on a weighted average basis and comprises all cost of purchase and other cost incurredin bringing the inventories to their present location.Net realisable value represents the estimated selling price in the ordinary course of business, less allestimated costs to completion and applicable variable selling expenses. In arriving at the net realisable value,due allowance is made for all obsolete and slow moving items.Inventories include telecommunication equipment and maintenance spares acquired for the purpose ofreplacing damaged or faulty plant or spares and supplies to be used in constructing and maintaining thenetwork.190