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Whitehaven Coal Limited : Annual Report 2008
Whitehaven Coal Limited - Annual Report 2008 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2008 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) c) Financial instruments (continued) (ii) Derivative financial instruments The consolidated entity uses derivative financial instruments to hedge its exposure to foreign exchange risks arising from operating activities. In accordance with its treasury policy, the consolidated entity does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. During the year ended 30 June 2008, the consolidated entity converted its hedge book comprising foreign currency options to forward exchange contracts. Derivative financial instruments are recognised initially at fair value with attributable transaction costs recognised in the income statement when incurred. Subsequent to initial recognition, derivative financial instruments are measured at fair value and changes therein are accounted for as described below. Cash flow hedges Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to profit or loss in the same period that the hedged item affects profit or loss. Economic hedges Derivatives which do not qualify for hedge accounting are measured at fair value with changes in fair value recognised in the profit and loss. (iii) Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of any related income tax benefit. Dividends Dividends are recognised as a liability in the period in which they are declared. 45
Annual Report 2009