144 / 284
Axiata Group Berhad | Annual Report 2016
FINANCIAL STATEMENTS
142
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) Derivative financial instruments and hedging activities (continued)
(i) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the profit or loss, together
with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Group and the Company
only apply fair value hedge accounting for hedging fixed interest risk on borrowings. The gain or loss relating to the effective portion of
cross currency interest rate swaps (“CCIRS”) hedging fixed rate borrowings is recognised in the profit or loss within ‘finance costs’. The
gain or loss relating to the ineffective portion is recognised in the profit or loss within ‘other gains/(losses) - net’. Changes in the fair value
of the hedge fixed rate borrowings attributable to interest rate risk are recognised in the profit or loss within ‘finance cost’.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the
effective interest method is used and is amortised to profit or loss over the period to maturity using a recalculated effective interest rate.
(ii) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in OCI.
The gain or loss relating to the ineffective portion 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 item affects profit or loss (for example,
when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging
variable rate borrowings is recognised in the profit or loss within ‘finance costs’. The gain or loss relating to the ineffective portion is
recognised in the profit or loss within ‘other gains/(losses) – net’. However, when the forecast transaction that is hedged, results in
the recognition of a non-financial asset, the gains and losses previously deferred in equity are transferred from equity and included in
the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in the case of
inventory 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 hedge accounting, any cumulative gain
or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the
profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is
immediately transferred to the profit or loss within ‘other gains/(losses) – net’.
(iii) Net investment hedge
Hedges 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 recognised in OCI. The gain or loss relating
to the ineffective portion is recognised immediately 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 is partially disposed of or sold.
(iv) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not
qualify for hedge accounting are recognised immediately in profit or loss and are included in ‘other gains/losses – net’.
(i) Inventories
Inventories are stated at lower of cost and net realisable value.
Certain items such as spare parts, stand-by equipment and servicing equipment shall be recognised as PPE when they meet the definition of
PPE under MFRS 116. Otherwise, the items are classified as inventory.
Cost is determined on a weighted average basis and comprises all cost of purchase and other cost incurred in bringing the inventories to their
present location.