Adaro Energy Annual Report 2009 151 www.adaro.com
PT ADARO ENERGY Tbk AND SUBSIDIARIES Schedule 513
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2009 AND 2008
Expressed in million Rupiah, unless otherwise stated
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
s. Derivative financial instruments and hedging activities
Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their 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. The Group designates certain derivatives as either 1 a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised
firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss fair value hedge; or 2 a hedge of the exposure to variability in cash flows that i is attributable
to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and ii could affect profit or loss cash flow hedge.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Group also documents
its assessment, both at the hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
The full value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of hedged item is less than 12
months. i
fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the
consolidated statement of income, together with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. The gain or loss relating to the effective portion of such fair value hedge is recognised in
the consolidated statement of income in the similar line of changes in the fair value of the hedge items being charged to. The gain or loss relating to the ineffective portion is recognised imm ediately in the consolidated statement of income
within - “other gainslosses-net”.
ii cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity within “fair value reserve” account. The gain or loss relating to the ineffective portion is recognised
immediately in the consolidated statement of income within - “other gainslosses-net”. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss.
The gain or loss relating to the effective portion of the cash flow hedge is recognised in the consolidated statement of income in the similar line of the hedged items usually being charged to. The gain or loss relating to the ineffective portion
is recognised in the consolidated statement of income within - “other gainslosses-net”. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset, the gains and losses previously deferred in
equity are transferred from equity and included in the initial measurement of the cost of the asset.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is
ultimately recognised in the consolidated statement of income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated statement of
income within - “other gainslosses-net”.
Changes in the fair value of any derivative instruments that are not designed or do not qualify for hedge accounting are recognised immediately in the consolidated statement of income within - “other gainslosses-net”.
t. Earnings per share
Basic earnings per share is calculated by dividing net income by the weighted-average number of ordinary shares outstanding during the year.
Diluted earnings per share is calculated by dividing net income adjusted for the interest expense and the foreign exchange gains or losses on convertible bonds, and its related tax effects, by the weighted-average number of issued and fully paid up
shares during the period, assuming that all options have been exercised and all the convertible bonds have been converted.
u. Segment reporting
A business segment is a distinguishable component in providing a product or service which is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component in providing
products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments.
