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CDL
HOSPITALITY TRUSTS
3 SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
3.6 Financial instruments (cont'd)
Derivative financial instruments, including hedge accounting
Derivative financial instruments are held to hedge foreign currency and interest rate risk exposures. Embedded
derivatives are separated from the host contract and accounted for separately if the economic characteristics
and risks of the host contract and the embedded derivative are not closely related, a separate instrument
with the same terms as the embedded derivative would meet the definition of a derivative, and the combined
instrument is not measured at fair value through the statement of total return.
On initial designation of the hedge, the relationship between the hedging instrument(s) and hedged
item(s) is formally documented, including the risk management objectives and strategy in undertaking the
hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging
relationship. An assessment is made, both at the inception of the hedge relationship as well as on an ongoing
basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the
fair value or cash flows of the respective hedged items during the period for which the hedge is designated,
and whether the actual results of each hedge are within a range of 80% - 125%. For a cash flow hedge of a
forecast transaction, the transaction should be highly probable to occur and should present an exposure to
variations in cash flows that could ultimately affect reported net income.
Derivatives are recognised initially at fair value; attributable transaction costs are recognised in the statement
of total return when incurred. Subsequent to initial recognition, derivatives are measured at fair value.
The gain or loss on re-measurement to fair value is recognised immediately in the statement of total return.
However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends
on the nature of the item being hedged.
Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised
directly in unitholders’ funds to the extent that the hedge is effective. To the extent that the hedge is
ineffective, changes in fair value are recognised in the statement of total return.
When the hedged item is a non-financial asset, the amount recognised in unitholders’ funds is transferred to
the carrying amount of the asset when it is recognised. In other cases, the amount recognised in unitholders’
funds is transferred to the statement of total return in the same period that the hedged item affects the total
return.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or
exercised, hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised
in unitholders’ funds remains there until the forecast transaction occurs.
3.7 Inventories
Inventories comprise mainly food, beverage stocks and consumables.
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is calculated
using the weighted average cost formula.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs
of completion and selling costs.
NOTES TO THE FINANCIAL STATEMENTS
