2. Summary of significant accounting policies (cont’d)
2.25 Hedge accounting (cont’d)
Such hedges are expected to be highly effective in achieving offsetting changes in fair
value or cash flows and are assessed on an ongoing basis to determine that they actually
have been highly effective throughout the financial reporting periods for which they were
designated.
Hedges which meet the strict criteria for hedge accounting are accounted as follows:
(a) Fair value hedges
The change in the fair value of a hedging derivative is recognised in profit or loss in
finance costs. The change in the fair value of the hedged item attributable to the risk
hedged is recorded as a part of the carrying value of the hedged item and is also
recognised in profit or loss in finance costs.
For fair value hedges relating to items carried at amortised cost, the adjustment to
carrying value is amortised through the profit or loss over the remaining term to
maturity using the effective interest rate method.
Effective interest rate amortisation may begin as soon as an adjustment exists but
no later than when the hedged item ceases to be adjusted for changes in its fair
value attributable to the risk being hedged. If the hedged item is derecognised, the
unamortised fair value is recognised immediately in profit or loss.
When an unrecognised firm commitment is designated as a hedged item, the
subsequent cumulative change in the fair value of the firm commitment attributable
to the hedged risk is recognised as an asset or liability with a corresponding gain or
loss recognised in profit or loss.
The Group discontinues fair value hedge accounting if the hedging instrument
expires or is sold, terminated or exercised, the hedge no longer meets the criteria
for hedge accounting or the Group revokes the designation. Any adjustment to the
carrying amount of a hedged financial instrument for which the effective interest
method is used is amortised to profit or loss. The group has interest rate swap that
is used as a hedge for the exposure of changes in the fair value of the floating rate
portion of its secured loans. See Note 12 (ii) for more details.
(b) Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognised
directly in other comprehensive income in the hedging reserve, while any ineffective
portion is recognised immediately in profit or loss in other expenses.
Amounts recognised as other comprehensive income are transferred to profit or loss
when the hedged transaction affects profit or loss, such as when hedged financial
income or financial expense is recognised or when a forecast sale or purchase
occurs. Where the hedged item subsequently results in the recognition of a non-
financial asset or liability, the amounts recognised as other comprehensive income
are transferred to the initial carrying amount of the non-financial asset or liability.
NOTES TO THE FINANCIAL
STATEMENTS
For the financial year ended 30 June 2015
ASL Marine Holdings Ltd. /Annual Report 2015
99
