2017 WEL Networks
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Annual Report
42
(q)
Derivatives
Derivatives are initially recognised at fair value on the date
a derivative contract is entered into and are subsequently
re-measured at their fair value. The method of recognising
the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so,
the nature of the item being hedged. The Group designates
certain derivatives as either:
1. hedges of the fair value of recognised assets or
liabilities or a firm commitment (fair value hedge);
2. hedges of a particular risk associated with a
recognised asset or liability or a highly probable
forecast transaction (cash flow hedge); or
3. hedges of a net investment in a foreign operation (net
investment hedge).
The Group documents at the inception of the transaction
the relationship between hedging instruments and hedged
items, as well as its risk management objectives and
strategy for undertaking various hedging transactions.
The Group also documents its assessment, both at
hedge inception and on an on-going basis, of whether the
derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of
hedged items.
The fair values of various derivative instruments used for
hedging purposes are disclosed in note 23. Movements
on the hedging reserve in other comprehensive income are
shown in note 17. The full fair value of a hedging derivative
is classified as a non-current asset or liability when the
remaining hedged item is more than 12 months, and as a
current asset or liability when the remaining maturity of the
hedged item is less than 12 months. Trading derivatives are
classified as a current asset or liability.
(i)
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 other comprehensive income. The
gain or loss relating to the ineffective portion is recognised
immediately in the profit and loss component of the
statement of comprehensive income within expenses.
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 and loss component of the
statement of comprehensive income within ‘finance income/
cost’. However, when the forecast transaction that is
hedged results in the recognition of a non-financial asset
(for example, inventory or fixed assets), 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
depreciation in the case of property, plant and equipment.
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 and loss
component of the statement of comprehensive income
statement. 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
and loss component of the statement of comprehensive
income within expenses.
(r)
Contributed Equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of
new ordinary shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
(s)
Contract work in progress
For the five months of the financial year up to the date
of acquisition of Ultrafast Fibre Limited, contract work
in progress was stated at cost less amounts invoiced to
customers. Cost includes all expenses directly related to
specific contracts and an allocation of general overhead
expenses incurred by the Group’s contract operations.
When the outcome of a construction contract can be
estimated reliably and it is probable that the contract
WEL NETWORKS LIMITED
Notes to the financial statements
For the year-ended 31 March 2017
(continued)
