BT 1997 Annual Report Download - page 37

ACCOUNTING POLICIES
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(c) Engineering stores
Most engineering stores items are used in the
construction of new plant and the remainder for
maintenance. When issued, these stores are charged
to the cost of specific plant or to the profit and loss
account, as appropriate. They are stated at cost, less
a provision for excess and obsolete items.
IX Fixed asset investments
Investments in subsidiary and associated undertakings
are stated in the balance sheet of the company at cost
less amounts written off. Amounts denominated in
foreign currency are translated into sterling at year-end
exchange rates.
Investments in associated undertakings are stated in
the group balance sheet at the group’s share of their
net assets.
The group’s share of profits less losses of associated
undertakings is included in the group profit and
loss account.
Investments in other participating interests and other
investments are stated at cost less amounts written off.
X Stocks
Stocks mainly comprise items of equipment, held for
sale or rental, consumable items and work in progress
on long-term contracts.
Equipment held and consumable items are stated at the
lower of cost and estimated net realisable value, after
provisions for obsolescence.
Work in progress on long-term contracts is stated at cost,
after deducting payments on account, less provisions for
any foreseeable losses.
XI Redundancy costs
Redundancy costs arising from periodic reviews of staff
levels are charged against profit in the year in which
employees leave the group.
If the most recent actuarial valuation of the group’s
pension scheme shows a deficit, the estimated cost of
providing incremental pension benefits in respect of
employees leaving the group is charged against profit in
the year in which the employees leave the group, within
redundancy charges.
XII Pension scheme
The group operates a defined benefit pension scheme,
which is independent of the group’s finances, for the
substantial majority of its employees. Actuarial valuations
of the scheme are carried out as determined by the
trustees at intervals of not more than three years, the
rates of contribution payable and the pension cost being
determined on the advice of the actuaries, having regard
to the results of these valuations. In any intervening years,
the actuaries review the continuing appropriateness of
the contribution rates.
The cost of providing pensions is charged against profits
over employees’ working lives with the group using the
projected unit method. Variations from this regular cost
are allocated over the average remaining service lives of
current employees to the extent that these variations do
not relate to the estimated cost of providing incremental
pension benefits in the circumstances described in
XI above.
Interest is accounted for on the provision in the balance
sheet which results from differences between amounts
recognised as pension costs and amounts funded.
The regular pension cost, variations from the regular
pension cost, described above, and interest are all
charged within staff costs.
XIII Taxation
The charge for taxation is based on the profit for the year
and takes into account deferred taxation. Provision is
made for deferred taxation only to the extent that timing
differences are expected to reverse in the foreseeable
future, with the exception of timing differences arising
on pension costs where full provision is made irrespective
of whether they are expected to reverse in the
foreseeable future.
XIV Financial instruments
Interest differentials, under swap agreements used to
vary the amounts and periods for which interest rates
on borrowings are fixed, are recognised by adjustment
of interest payable.
Currency swap agreements and forward exchange
contracts, used to reduce the impact of changes in
currency rates on certain of the group’s long-term
borrowings denominated in foreign currency, are valued
at year-end exchange rates. The resulting gains or losses
are offset against foreign exchange gains or losses on the
related borrowings.
Premiums or discounts on financial instruments
designated as hedges are reflected as adjustments to
interest payable.