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Integrated Report 2016
ANNUAL FINANCIAL STATEMENTS
(continued)
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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.
CASH FLOW HEDGES
Cash flow hedges cover the exposure to variability in cash flows that are attributable to a particular risk associated with:
•
a recognised asset or liability; or
•
a highly probable forecast transaction; or
•
the foreign currency risk in an unrecognised firm commitment.
The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in other
comprehensive income, while any ineffective portion is recognised in profit or loss.
Amounts taken to other comprehensive income are transferred to profit or loss when the hedged transaction affects profit or loss, such as
when the hedged income or financial asset or liability is recognised or when the forecast sale or purchase occurs. Where the hedged item is
the cost of a non-financial asset or liability, the amount deferred in other comprehensive income is transferred to the initial carrying amount
of the non-financial asset or liability.
If the forecast transaction is no longer expected to occur, amounts previously recognised in other comprehensive income are transferred
to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation
is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs. If the related transaction is not
expected to occur, the amount is taken to profit or loss.
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition
are accounted for as follows:
Raw materials
Purchase cost on a first-in, first-out basis
Finished goods and work in progress
Cost of direct material and labour and a proportion of manufacturing overheads based on normal
operating capacity.
Consumables are written down with regard to their age, condition and utility.
Costs of inventories include the transfer from other comprehensive income of gains and losses on qualifying cash flow hedges in respect of
the purchases of inventories.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated completion and selling costs.
PROVISIONS
Provisions are recognised when the Group has a present legal or constructive obligation, as a result of past events, for which it is probable that
an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is
recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the
statement of comprehensive income through profit or loss net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to
the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
LEASES
At inception date an arrangement is assessed to determine whether it is, or contains, a lease. An arrangement is accounted for as a lease where
it is dependent on the use of a specific asset and it conveys the right to use that asset.