152
FRASERS HOSPITALITY TRUST ANNUAL REPORT 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL PERIOD FROM 20 JUNE 2014 (DATE OF CONSTITUTION) TO 30 SEPTEMBER 2015
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
2.12 Rental deposits and deferred income
Rental deposits are received from master lessees of the investment properties. The accounting policy for rental
deposits as a financial liability is set out in Note 2.11.
2.13 Borrowings
Borrowings are initially recognised at fair value (net of transaction costs) and subsequently carried at amortised
cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in
Statements of Total Return over the period of the borrowings using the effective interest method.
2.14 Derivative financial instruments
The Stapled Group uses derivative financial instruments to hedge against risks associated with foreign currency
and interest rate fluctuations. Foreign exchange forward contracts are used to hedge its risks associated
primarily with foreign currency fluctuations. Interest rate swap contracts are used to hedge its risks associated
with interest rate fluctuations. It is the Stapled Group's policy not to trade in derivative financial instruments.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently re-measured at their fair value. The changes in fair value of any derivative instruments that do not
qualify for hedge accounting are recognised immediately in the Statements of Total Return.
The Stapled Group applies hedge accounting for certain hedging relationships which qualify for hedge
accounting. For the purpose of hedge accounting, these hedges are classified as cash flow hedges. At the
inception of a hedge relationship, the Stapled Group formally designates and documents the hedge relationship
to which the Stapled Group wishes to apply hedge accounting and the risk management objective and strategy
for undertaking the hedge. Such hedges are expected to be highly effective in achieving offsetting changes
in cash flow and are assessed on an ongoing basis to determine that they actually have been highly effective
throughout the financial reporting periods for which they were designated. Hedges which meet the strict criteria
for hedge accounting are accounted for as follows:
The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive
income in hedging reserve, while any ineffective portion is recognised immediately in the Statements of Total
Return. Amounts recognised as other comprehensive income are transferred to the Statements of Total Return
when the hedged transaction affects the Statements of Total Return, 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 recognised as other comprehensive income 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 Stapled Securityholders’ Funds are transferred
to the Statements of Total Return. 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 other comprehensive income remain in other comprehensive income until the forecast transaction or firm
commitment occurs.
The fair value of forward foreign currency contracts is calculated by reference to current forward foreign
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.
Financial assets and liabilities are offset and the net amount reported in the Statements of Financial Position
when there is a legally enforceable right to offset and there is intention to settle on a net basis or realise the asset
and settle the liability simultaneously.
