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At the inception of the transaction the Group documents

for long-term debt. Other techniques, such as options pricing

the relationship between hedging instruments and hedged

models and estimated discounted value of future cash flows,

items, as well as its risk management objective and strategy

are used to determine fair value of the remaining financial

for undertaking various hedge transactions. The Group also

instruments.

documents its assessment, both at the hedge inception and on an on-going basis, of whether the derivatives that are used in

INVENTORIES

hedging transactions are highly effective in offsetting changes in

Inventories are valued at the lower of cost and net realisable

fair values or cash flows of hedged items.

value. Cost is determined on the first-in-first-out basis. The values of finished goods and work-in-progress include raw

The fair values of various derivative instruments used for hedging

materials, direct labour, other direct costs and related production

purposes are disclosed in note 35. Movements on the hedging

overheads (based on normal operating capacity) but exclude

reserves in shareholders’ equity are shown under non-distributable

borrowing costs. Net realisable value is the estimate of the

reserves in the statement of changes in equity.

selling price in the ordinary course of business, less the costs of completion and applicable variable selling expenses. Cost of

Embedded derivatives

inventories includes the transfer from equity of gains/losses on

An embedded derivative is a component of a hybrid instrument

qualifying cash flow hedges relating to inventory purchases.

that also includes a non-derivative host contract, with the effect that some of the cash flows of the combined instrument vary in

TRADE RECEIVABLES

a way similar to a stand-alone derivative. Embedded derivative

Trade receivables are recognised initially at fair value and

instruments are accounted for separately if the economic

subsequently measured at amortised cost using the effective

characteristics of the embedded derivative are different from

interest rate method, less the allowance account for credit

those of the host contract and the embedded derivative would

losses. No fair value adjustment is made for the effect of time

meet the definition of a derivative if seen separately. Embedded

value of money where trade receivables have a short-term profile.

derivatives are not split out from instruments already measured

A provision for impairment of trade receivables is established

at fair value through profit and loss. In addition, embedded

when there is objective evidence that the Group will not be able

foreign currency derivatives are not split out if payments are

to collect all amounts due according to the original terms of

required in one of the following currencies:

the receivables. Significant financial difficulties of the debtor,

• The functional currency of any substantial party to the

probability that the debtor will enter bankruptcy or financial

contract;

reorganisation and default or late payments are considered

• The currency in which the price of the related good or service is routinely denominated; or

indicators that the trade receivable is impaired. The amount of the provision is the difference between the carrying amount

• A currency that is commonly used in contracts to purchase

and the recoverable amount, being the present value of the

non-financial items in the economic environment in which the

estimated future cash flow discounted at the effective interest

transaction takes place.

rate. This provision is recognised either directly or through the use of an allowance account. The amount of the loss is included

Fair value estimation

in the income statement for the period.

The fair value of publicly traded derivatives and available-forsale securities is based on quoted market prices at the balance

TAX

sheet date. The fair value of interest rate swaps and cross-

The income tax charge is computed on the basis of reported

currency swaps is calculated as the present value of estimated

income before tax for the year under the laws and regulations

future cash flows. The fair value of forward exchange contracts

of the countries in which the respective Group companies are

is determined using forward exchange market rates at the

registered. Income tax comprises current tax, deferred tax and

balance sheet date.

dividend taxes including STC.

In assessing the fair value of non-traded derivatives and other

Current tax

financial instruments, the Group uses a variety of methods

The current tax charge is the expected tax payable on taxable

and makes assumptions that are based on market conditions

income for the year using substantively enacted tax rates and

existing at each balance sheet date. Quoted market prices or

any adjustments to tax payable in respect of prior years.

dealer quotes for the specific or similar instruments are used

79

Aspen Annual Report 2006

Profile for Aspen Holdings

Aspen Annual Report 2006  

Aspen Annual Report 2006