2016_Halma_ARA_160610_2

Accounting Policies continued
Foreign currencies
The Group presents its accounts in Sterling. Transactions in foreign currencies are recorded at the rate of exchange at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates
prevailing at that date. Any gain or loss arising from subsequent exchange rate movements is included as an exchange gain or loss
in the Consolidated Income Statement.
Net assets of overseas subsidiary companies are expressed in Sterling at the rates of exchange ruling at the end of the financial year,
and trading results and cash flows at the average rates of exchange for the financial year. Goodwill arising on the acquisition of a foreign
business is treated as an asset of the foreign entity and is translated at the rate of exchange ruling at the end of the financial year. Exchange
gains or losses arising on these translations are taken to the Hedging and translation reserve within Shareholders’ funds.
In the event that an overseas subsidiary is disposed of or closed, the profit or loss on disposal or closure will be determined after taking
into account the cumulative translation difference held within the Hedging and translation reserve attributable to that subsidiary. As
permitted by IFRS 1, the Group has elected to deem the Hedging and translation to be £nil at 4 April 2004. Accordingly, the profit or
loss on disposal or closure of foreign subsidiaries will not include any currency translation differences which arose before 4 April 2004.
Derivative financial instruments and hedge accounting
The Group enters into derivative financial instruments to manage its exposure to foreign exchange rate risk using forward exchange
contracts. Further details of derivative financial instruments are disclosed in note 26.
Derivative financial instruments are classified as fair value through profit and loss (held for trading) unless they are in a designated
hedge relationship.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to
their fair value at each balance sheet date. The resulting gain or loss is recognised in the Consolidated Income Statement, unless the
derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the Consolidated Income
Statement depends on the nature of the hedge relationship. The Group designates certain derivatives as hedges of highly probable
forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments in foreign
operations.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as
a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument
is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current
assets or current liabilities.
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Halma plc Annual Report and Accounts 2016