Travelex Holdings Limited Annual report & consolidated financial ...

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Travelex Holdings Limited
Notes to the financial statements continued
for the year ended 31 December 2001
(k) Travellers cheques awaiting redemption
A liability is recorded for all travellers cheques issued but not encashed. This is then adjusted to take account of the value
of those cheques, which it is anticipated will never be presented for payment. In estimating this amount the directors use the
services of a firm of independent actuaries. The difference between the opening and closing position of this float write-back
is included in turnover.
(l) Currency stock
Currency stock consists of all foreign currencies held in tills, in transit and in distribution centres. Currency stock is valued
at the lower of cost and net realisable value.
(m) Financial instruments
Financial instruments include forward foreign currency exchange contracts and foreign exchange swaps in the foreign
exchange markets. The Group uses these instruments to hedge existing assets and liabilities (refer to note 22 – Financial
instruments – Objectives, policies and strategies in holding and managing financial instruments).
Gains and losses on these instruments are included in turnover. The gross asset and liability relating to forward foreign
currency exchange contracts are reported on the balance sheet.
Where the instrument is used to hedge an underlying transaction which itself is marked-to-market, the instrument is valued
in the same way and changes in the market value are recognised in the profit and loss account in the same period. Where the
underlying transaction is recorded on an accruals basis, the instrument is recorded in a similar manner. In this case, the costs
of establishing the hedge instrument are capitalised; the market value of the instrument is not recognised in the profit and loss
account but the effective rate applied in expensing the underlying transaction.
Forward foreign currency exchange contracts entered into as foreign exchange deals and foreign currency assets and liabilities
are valued at the rate of exchange ruling at the balance sheet date.
(n) Leases
Assets held under finance leases are included within fixed assets at fair value which is considered to approximate the present
value of minimum lease payments and are depreciated over the shorter of the lease term or their estimated useful life. Future
instalments under such leases, net of finance charges, are included within creditors. Rentals payable are apportioned between
the finance element, which is charged to the profit and loss account as interest, and the capital element, which reduces the
outstanding obligation for future instalments.
Rentals under operating leases are charged to the profit and loss account on a straight-line basis over the lease term.
Incentives offered to/received as lessees are spread over the shorter of the lease term and a date from which it is expected
that the prevailing market rental will be payable, on a straight-line basis as a reduction to rental income/expense.
(o) Finance costs
Finance costs associated with the issue of debt are deducted from the proceeds of the issue and released to the profit and
loss account over the term of the debt on a straight-line basis.
(p) Pension costs
Contributions to the Group’s defined contribution pension schemes are charged to the profit and loss account as incurred.
Contributions to the Group’s defined benefit schemes are charged to the profit and loss account so as to spread the cost
of providing pensions over the employees’ working lives within the Group. Variations in pension cost, which are identified
as a result of actuarial valuations, are amortised over the average expected remaining working lives of the employees.