ITF

56 ITF FINANCIAL STATEMENTS NOTES (FORMING PART OF THE FINANCIAL STATEMENTS) Hedges which meet the strict criteria for hedge accounting are accounted for as follows: Fair value hedges The change in the fair value of a hedging derivative is recognised in income and expenditure. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognised in income and expenditure. For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through income and expenditure over the remaining term to maturity. Any adjustment to the carrying amount of a hedged financial instrument, for which the effective interest rate method is used, is amortised through income and expenditure. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedge item is derecognised, the unamortised fair value is recognised immediately in income and expenditure. When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in income and expenditure. The changes in the fair value of the hedging instrument are also recognised in income and expenditure. Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in income and expenditure. Amounts taken to equity are transferred to income and expenditure when the hedged transaction affects income and expenditure, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to income and expenditure. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs. Hedges of a net investment Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in income and expenditure. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to income and expenditure.

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