Notes to the consolidated financial statements continued
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3. Significant accounting policies
(iii) Available-for-sale investments
HEINEKEN's investments in equity securities and certain debt securities are classified as available-for-sale. Subsequent to initial recognition,
they are measured at fair value and changes therein-other than impairment losses (see note 3i(i)) and foreign currency differences on
available-for-sale monetary items (see note 3b(i)) are recognised in other comprehensive income and presented within equity in the fair
value reserve. When these investments are derecognised, the relevant cumulative gain or loss in the fair value reserve is transferred to profit
Where these investments are interest-bearing, interest calculated using the effective interest method is recognised in profit or loss.
Available-for-sale investments are recognised or derecognised by HEINEKEN on the date it commits to purchase or sell the investments.
(iv) Other
Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.
Included in non-derivative financial instruments are advances to customers. Subsequently, the advances are amortised over the term of the
contract as a reduction of revenue.
(d) Derivative financial instruments (including hedge accounting)
(i) General
HEINEKEN uses derivatives in the ordinary course of business in order to manage market risks. Generally, HEINEKEN seeks to apply hedge
accounting in order to minimise the effects of foreign currency, interest rate or commodity price fluctuations in profit or loss.
Derivatives that can be used are interest rate swaps, forward rate agreements, caps and floors, commodity swaps, spot and forward
exchange contracts and options. Transactions are entered into with a limited number of counterparties with strong credit ratings. Foreign
currency, interest rate and commodity hedging operations are governed by internal policies and rules approved and monitored by the
Executive Board.
Derivative financial instruments are recognised initially at fair value, with attributable transaction costs recognised in profit or loss as incurred.
Derivatives for which hedge accounting is not applied are accounted for as instruments at fair value through profit or loss. When derivatives
qualify for hedge accounting, subsequent measurement is at fair value, and changes therein accounted for as described in 3b(iv), 3d(ii) or 3d(iii).
(ii) Cashflow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised in other comprehensive
income and presented in the hedging reserve within equity to the extent that the hedge is effective. To the extent that the hedge is ineffective,
changes in fair value are recognised in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, hedge accounting
is discontinued. The cumulative unrealised gain or loss previously recognised in other comprehensive income and presented in the hedging
reserve in equity is recognised in profit or loss immediately. When a hedging instrument is terminated, but the hedged transaction still is
expected to occur, the cumulative gain or loss at that point remains in other comprehensive income and is recognised in accordance with
the above-mentioned policy when the transaction occurs. When the hedged item is a non-financial asset, the amount recognised in other
comprehensive income is transferred to the carrying amount of the asset when it is recognised. In other cases, the amount recognised in
other comprehensive income is transferred to the same line of profit or loss in the same period that the hedged item affects profit or loss.
(iii) Fair value hedges
Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognised in profit or loss. The hedged item
also is stated at fair value in respect of the risk being hedged; the gain or loss attributable to the hedged risk is recognised in profit or loss and
adjusts the carrying amount of the hedged item.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the
effective interest method is used is amortised to profit or loss over the period to maturity.
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Heineken N.V. Annual Report 2014