BT 2013 Annual Report Download - page 114

112 Financial statements
Provisions
Provisions are recognised when the group has a present legal or
constructive obligation as a result of past events, it is probable that an
outflow of resources will be required to settle the obligation and the
amount can be reliably estimated. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and the
risks specific to the liability. Financial liabilities within provisions are
initially recognised at fair value and subsequently carried at amortised
cost using the effective interest method. Onerous lease provisions are
measured at the lower of the cost to fulfil or to exit the contract.
Current and deferred income tax
Current income tax is calculated on the basis of the tax laws enacted or
substantively enacted at the balance sheet date in the countries where
the company’s subsidiaries, associates and joint ventures operate and
generate taxable income. The group periodically evaluates positions
taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation, and the group establishes
provisions where appropriate on the basis of the amounts expected to
be paid to tax authorities.
Deferred tax is recognised, using the liability method, in respect of
temporary differences between the carrying amount of the group’s
assets and liabilities and their tax base. Deferred income tax assets and
liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred
income tax assets and liabilities relate to income taxes levied by the
same taxation authority on either the taxable entity or different taxable
entities where there is an intention to settle the balances on a net basis.
Any remaining deferred tax asset is recognised only when, on the basis
of all available evidence, it can be regarded as probable that there will
be suitable taxable profits, within the same jurisdiction, in the
foreseeable future against which the deductible temporary difference
can be utilised.
Deferred tax is determined using tax rates that are expected to apply in
the periods in which the asset is realised or liability settled, based on tax
rates and laws that have been enacted or substantively enacted by the
balance sheet date.
Basis of consolidation
The group financial statements consolidate the financial statements of
BT Group plc (‘the company’) and its subsidiaries, and they incorporate
its share of the results of associates and joint ventures using the equity
method of accounting.
A subsidiary is an entity that is controlled by another entity, known as
the parent. Control is the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities, generally
accompanied by a shareholding of more than one half of the voting
rights. Non-controlling interests in the net assets of consolidated
subsidiaries, which consist of the amounts of those interests at the date
of the original business combination and non-controlling share of
changes in equity since the date of the combination, are not material to
the group’s financial statements. See note 1 for more details.
The results of subsidiaries acquired or disposed of during the year are
consolidated from and up to the date of change of control. Where
necessary, accounting policies of subsidiaries have been aligned with
the policies adopted by the group. All intra-group transactions
including any gains or losses, balances, income or expenses are
eliminated in full on consolidation.
When the group loses control of a subsidiary, the profit or loss on
disposal is calculated as the difference between (i) the aggregate of
the fair value of the consideration received and the fair value of any
retained interest and (ii) the previous carrying amount of the assets
(including goodwill), and liabilities of the subsidiary and any non-
controlling interests. The profit or loss on disposal is normally
recognised as a specific item.
Business combinations
The consideration is measured at fair value, which is the aggregate of
the fair values of the assets transferred, liabilities incurred or assumed
and the equity instruments issued in exchange for control of the
acquiree. Acquisition-related costs are expensed as incurred. The
acquiree’s identifiable assets and liabilities are recognised at their fair
value at the acquisition date.
Goodwill arising on acquisition is recognised as an asset and measured
at cost, representing the excess of the aggregate of the consideration,
the amount of any non-controlling interests in the acquiree, and the
fair value of the acquirer’s previously held equity interest in the
acquiree (if any) over the net of the fair values of the identifiable assets
and liabilities at the date of acquisition.
Impairment of non-financial assets
Intangible assets with finite useful lives and property, plant and
equipment are tested for impairment if events or changes in
circumstances (assessed at each reporting date) indicate that the
carrying amount may not be recoverable. When an impairment test is
performed, the recoverable amount is assessed by reference to the
higher of the net present value of the expected future cash flows
(value in use) of the relevant cash generating unit and the fair value
less cost to sell.
Goodwill is reviewed for impairment at least annually. Impairment
losses are recognised in the income statement, normally as a specific
item. If a cash generating unit is impaired, impairment losses are
allocated firstly against goodwill, and secondly on a pro rata basis
against intangible and other assets.
Other operating income
Other operating income is income generated by the group that arises
from activities outside the provision of communication services and
equipment sales. Items reported as other operating income include
income from repayment works, proceeds from scrap and cable
recovery, income generated by our fleet operations, profits and losses
on the disposal of businesses and property, plant and equipment, and
income generated from the exploitation of our intellectual property.
3. Significant accounting policies continued