BT 2013 Annual Report Download - page 115

Financial statements
113
Financial statements
Government grants
Our policy for government grants changed from 1 April 2012 as
explained on page 107. Government grants are recognised when there
is reasonable assurance that the conditions associated with the grants
have been complied with and the grants will be received.
Grants for the purchase or production of property, plant and equipment
are deducted from the cost of the related assets and reduce future
depreciation expense accordingly. Grants for the reimbursement of
operating expenditure are deducted from the related category of costs
in the income statement. Government grants received relating to future
expenditure are recognised as payments received in advance within
Other payables.
Foreign currencies
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the date of the
transaction. Foreign exchange gains and losses resulting from the
settlement of transactions and the translation of monetary assets and
liabilities denominated in foreign currencies at period end exchange
rates are recognised in the income statement line which most
appropriately reflects the nature of the item or transaction.
On consolidation, assets and liabilities of foreign undertakings are
translated into Sterling at year end exchange rates. The results of
foreign undertakings are translated into Sterling at average rates of
exchange for the year (unless this average is not a reasonable
approximation of the cumulative effects of the rates prevailing on the
transaction dates, in which case income and expenses are translated at
the dates of the transactions). Foreign exchange differences arising on
retranslation are recognised directly in a separate component of equity,
the translation reserve.
In the event of the disposal of an undertaking with assets and liabilities
denominated in a foreign currency, the cumulative translation
difference associated with the undertaking in the translation reserve is
charged or credited to the gain or loss on disposal recognised in the
income statement.
Research and development
Research expenditure is recognised in the income statement in the
period in which it is incurred. Development expenditure, including the
cost of internally developed software, is recognised in the income
statement in the period in which it is incurred unless it is probable that
economic benefits will flow to the group from the asset being
developed, the cost of the asset can be reliably measured and technical
feasibility can be demonstrated, in which case it is capitalised as an
intangible asset on the balance sheet. Capitalisation ceases when the
asset being developed is ready for use. Research and development
costs include direct and indirect labour, materials and directly
attributable overheads.
Leases
The determination of whether an arrangement is, or contains, a lease is
based on the substance of the arrangement and requires an assessment
of whether the fulfilment of the arrangement is dependent on the use
of a specific asset or assets and whether the arrangement conveys the
right to use the asset.
Leases of property, plant and equipment where the group holds
substantially all the risks and rewards of ownership are classified as
finance leases. Finance lease assets are capitalised at the
commencement of the lease term at the lower of the present value of
the minimum lease payments or the fair value of the leased asset. The
obligations relating to finance leases, net of finance charges in respect
of future periods, are recognised as liabilities. Leases are subsequently
measured at amortised cost using the effective interest method.
Leases where a significant portion of the risks and rewards are held by
the lessor are classified as operating leases. Rentals are charged to the
income statement on a straight line basis over the period of the lease.
Own shares
Own shares represent the shares of the parent company BT Group plc
that are held in treasury or by employee share ownership trusts. Own
shares are recorded at cost and deducted from equity. When shares vest
unconditionally or are cancelled they are transferred from the own
shares reserve to retained earnings at their weighted average cost.
Share-based payments
The group operates a number of equity settled share-based payment
arrangements, under which the group receives services from employees
in consideration for equity instruments (share options and shares) of the
group. Equity settled share-based payments are measured at fair value
at the date of grant excluding the effect of non market-based vesting
conditions but including any market-based performance criteria and the
impact of non-vesting conditions (for example the requirement for
employees to save). The fair value determined at the grant date is
recognised as an expense on a straight line basis over the vesting period,
based on the group’s estimate of the options or shares that will
eventually vest and adjusted for the effect of non market-based vesting
conditions. Fair value is measured using either the Binomial options
pricing model or Monte Carlo simulations, whichever is most appropriate
to the share-based payment arrangement.
Service and performance conditions are vesting conditions. Any other
conditions are non-vesting conditions which have to be taken into
account to determine the fair value of equity instruments granted. In
the case that an award or option does not vest as a result of a failure to
meet a non-vesting condition that is within the control of either
counterparty, this is accounted for as a cancellation. Cancellations are
treated as accelerated vesting and all remaining future charges are
immediately recognised in the income statement. As the requirement
to save under an employee sharesave arrangement is a non-vesting
condition, employee cancellations are treated as an accelerated
vesting.
Awards that lapse or are forfeited result in a credit to the income
statement (reversing the previously recognised charges) in the year in
which they lapse or are forfeited.
3. Significant accounting policies continued