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Whitehaven Coal Limited : Annual Report 2010
56 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2010 3.S UMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) g)D erivative financial instruments The consolidated entity uses derivative financial instruments to hedge its risks associated with foreign currency rate fluctuations arising from operating activities. Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into, and are subsequently remeasured to fair value. Any gains and losses arising from changes in the fair value of derivatives are accounted for as described below: • The fair values of forward exchange contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profiles • All attributable transaction costs are recognised in the statement of comprehensive income as incurred. Cash flow hedges Cash flow hedges are hedges of the consolidated entity's exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability that is a firm commitment and that could affect profit or loss. Changes in the fair value of the 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. Amounts taken to equity are transferred out of equity and included in the measurement of the hedged transaction (coal sales) when the forecast transaction occurs. The consolidated entity tests each of the designated cash flow hedges for effectiveness at each balance date, both retrospectively and prospectively, by using the dollar offset method. If the testing falls within the 80:125 range, the hedge is considered to be highly effective and continues to be designated as a cash flow hedge. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if it no longer meets the criteria for hedge accounting (due to it being ineffective),then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains in equity until the forecast transaction occurs. 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. h)I nvestments and other financial assets Financial assets in the scope of AASB 139 are categorised as either financial assets at fair value through profit and loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets. Financial assets are recognised initially at fair value, plus, for assets not at fair value through profit or loss, any directly attributable transaction costs. Recognition and derecognition Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the consolidated entity commits itself to purchase or sell the asset. Financial assets are derecognised if the consolidated entity's contractual rights to the cash flows from the financial assets expire or if the consolidated entity transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset.
Annual Report 2009
Annual Report 2011