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Gamuda Berhad (29579-T) • Annual Report 2012
2.
Summary of significant accounting policies (cont’d.)
2.28 Derivative financial instruments and hedge accounting (cont’d.)
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship
to which the Group wishes to apply hedge accounting and the risk management objective and strategy for
undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item
or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s
effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to
the hedged risk. 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.
The Group has entered into cash flow hedges and met the strict criteria for hedge accounting. The hedges are
accounted for as follows:
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognised directly in other comprehensive
income into cash flow hedge reserve, while any ineffective portion is recognised immediately in profit or loss as
other operating expenses.
Amounts recognised in other comprehensive income previously are reclassified fromequity to profit or loss when
the hedged transaction affects profit or loss, such as when the hedged interest income or interest expense is
recognised or when a forecast sale occurs. Where the hedged item is a non-financial asset or a non-financial
liability, the amounts recognised previously in other comprehensive income are removed and included in the
initial carrying amount of the non-financial asset or liability.
If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss
previously recognised in other comprehensive income is reclassified from equity to profit or loss. If the hedging
instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a
hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remain in
equity until the forecast transaction or firm commitment affects profit or loss.
To manage its risks, particularly interest rate risks, the Group has entered into a few interest rate swap
arrangements.
The Group did not enter into any fair value hedge or net investment hedge as at the end of this financial year.
Derivative instruments that are not a designated and effective hedging instrument are classified as current
or non-current or separated into a current and non-current portion based on an assessment of the facts and
circumstances.
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Where the Group will hold a derivative as an economic hedge (and does not apply hedge accounting)
for a period beyond 12 months after the reporting date, the derivative is classified as non-current (or
separated into current and non-current portions) consistent with the classification of the underlying
item.
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Embedded derivatives that are not closely related to the host contract are classified consistent with the
cash flows of the host contract.
NoTES To ThE FINANCIAL STATEMENTS
31 July 2012