Annual report and accounts 2016

110
Notes to the consolidated financial statements continued
2 Significant accounting policies continued
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the
amount of future benefit that employees have earned in return for their service in the current and prior years. The benefit is
discounted to determine its present value, and the fair value of any plan assets are deducted. The discount rate is the yield at the
balance sheet date on AA-rated corporate bonds of the appropriate currency that have durations approximating those of the
Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the net
obligation calculation results in an asset for the Group, the recognition of an asset is limited to the present value of any future
refunds from the plan or reductions in future contributions to the plan (‘the asset ceiling’). The fair value of the plan assets is based
on market price information and, in the case of quoted securities, is the published bid price.
Current service costs are recognised within employee costs in the year in which they arise. Past service costs are recognised in
the event of a plan amendment or curtailment, or when the Group recognises related restructuring costs or termination benefits.
The net interest is calculated by applying the discount rate used to measure the defined benefit obligation at the beginning of
the period to the net defined benefit liability or asset, taking into account any changes in the net defined benefit liability or asset
during the period as a result of contributions and benefit payments. Net interest and other expenses related to the defined benefit
plans are recognised in the Income statement. Remeasurements, comprising actuarial gains and losses, the effect of the asset
ceiling (excluding interest) and the return on plan assets (excluding interest), are recognised immediately in Other comprehensive
income. Remeasurements are not reclassified to the Income statement in subsequent periods.
b Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever
an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is
demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without
realistic possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
Other employee benefits are recognised when there is deemed to be a present obligation.
Taxation
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or substantively enacted at the balance sheet date.
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements, with the following exceptions:
• Where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is
not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;
• In respect of taxable temporary differences associated with investments in subsidiaries or associates, where the timing of the
reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the
foreseeable future; and
• Deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against
which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when
the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance
sheet date.
Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise income
tax is recognised in the Income statement.
Inventories
Inventories, including aircraft expendables, are valued at the lower of cost and net realisable value. Such cost is determined by the
weighted average cost method. Inventories include mainly aircraft spare parts, repairable aircraft engine parts and fuel.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits with any qualifying financial institution repayable on demand or
maturing within three months of the date of acquisition and which are subject to an insignificant risk of change in value.
Share-based payments
The Group operates a number of equity-settled, share-based payment plans, under which the Group awards equity instruments of
the Group for services rendered by employees. The fair value of the share-based payment plans is measured at the date of grant
using a valuation model provided by external specialists. The resulting cost, as adjusted for the expected and actual level of vesting
of the plan, is charged to the Income statement over the period in which the options vest. At each balance sheet date before
vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s
best estimate of the achievement or otherwise of non-market conditions, and accordingly the number of equity instruments that
will ultimately vest. The movement in the cumulative expense since the previous balance sheet date is recognised in the Income
statement with a corresponding entry in equity.
Provisions
Provisions are made when an obligation exists for a present liability in respect of a past event and where the amount of the
obligation can be reliably estimated.
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2016