BT 1998 Annual Report Download - page 46

VIII 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.
IX 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.
X 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.
XI 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 X 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.
XII Taxation
The charge for taxation is based on the profit for the year
and takes into account defer red 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.
XIII Financial instruments
(a) Debt instruments
Debt instruments are stated at the amount of net proceeds
adjusted to amortise any discount evenly over the term of
the debt.
(b) Derivative financial instruments
The group uses derivative financial instruments to reduce
exposure to foreign exchange risks and interest rate
movements. The group does not hold or issue derivative
financial instruments for financial trading purposes.
Criteria to qualify for hedge accounting
The group considers its derivative financial instruments
to be hedges when certain criteria are met. For foreign
currency derivatives, the instrument must be related to
actual foreign currency assets or liabilities or a probable
commitment and whose characteristics have been
identified. It must involve the same currency or similar
currencies as the hedged item and must also reduce the
risk of foreign cur rency exchange movements on the
group’s operations. For interest rate derivatives, the
instrument must be related to assets or liabilities or a
probable commitment and must also change the nature
of the interest rate by converting a fixed rate to a variable
rate or vice versa.
C C O U N T I N G P O L I C I E S