Notes to the Financial Statements
(Cont’d)
For the year ended 30 April 2015
(In Singapore Dollars)
59
STAMFORD TYRES CORPORATION LIMITED
BUILDING ON OUR EXTENSIVE NETWORK
2.
Summary of significant accounting policies (cont’d)
2.23
Taxes (cont’d)
(c)
Sales tax
Revenue, expenses and assets are recognised net of the amount of sales tax except:
z
Where the sales tax incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the sales tax is recognised as part of the cost of acquisition
of the asset or as part of the expense item as applicable; and
z
Receivables and payables that are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as
part of receivables or payables in the balance sheet.
2.24
Derivative financial instruments
The Group uses derivative financial instruments, such as forward currency contracts and interest rate
swaps, to manage its risks associated with foreign currency and interest rate fluctuations.
A derivative financial instrument is initially recognised at its fair value on the date the contract is entered
into and is subsequently carried at its 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.
For purpose of hedge accounting, hedges are classified as cash flow hedges when hedging the exposure
to variability in cash flows that is attributable to a particular risk associated with a highly probable forecast
transaction.
The Group documents at the inception of the transaction the relationship between the hedging
instruments and hedged items, as well as its risk management objective and strategies for undertaking
various hedge transactions. The Group also documents its assessment, both at hedge inception and on
an ongoing basis, of whether the derivatives designated as hedging instruments are highly effective in
offsetting changes in cash flows of the hedged items.
(a)
Cash flow hedge
The fair value changes on the effective portion of derivatives that are designated and qualify as
cash flow hedges are recognised in the fair value reserve within equity and transferred to profit or
loss in the periods when the hedged items affect profit or loss. The fair value changes relating to the
ineffective portion are recognised immediately in profit or loss.
(b)
Derivatives that do not qualify for hedge accounting
Fair value changes on these derivatives are recognised in profit or loss when the changes arise.
The fair value of forward currency contracts is calculated by reference to current forward exchange rates
for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by
reference to market values for similar instruments.
