BT 2013 Annual Report Download - page 163

Financial statements
161
Financial statements
26. Financial instruments and risk management continued
Other derivatives
The group’s policy is not to use derivatives for trading purposes. However, due to the complex nature of hedge accounting under IAS 39, some
derivatives may not qualify for hedge accounting, or are specifically not designated as a hedge where natural offset is more appropriate. Derivative
instruments that do not qualify for hedge accounting are held at fair value through profit and loss under IAS 39.
At 31 March 2013 the group held certain foreign currency forward and interest rate swap contracts which were not in hedging relationships. These
derivatives are disclosed on pages 157 and 158. Foreign currency forward contracts were economically hedging operational purchases and sales.
The interest rate swap contracts became ineffective on first time adoption of IFRS. The volatility arising from these swaps is recognised through the
income statement but is limited due to a natural offset in their fair value movements.
27. Other reserves
Other comprehensive income
Capital Available-
Merger redemption Cash flow for-sale Translation
reserveareserve reservebreservecreservedTotal
£m £m £m £m £m £m
At 1 April 2010 998 27 147 12 705 1,889
Exchange differences ––––(140) (140)
Net fair value loss on cash flow hedges – – (347) – – (347)
Recognised in income and expense – – 333 – – 333
Fair value movement on available-for-sale assets – – – 15 – 15
Tax recognised in other comprehensive income – – (5) – 18 13
At 1 April 2011 998 27 128 27 583 1,763
Exchange differences ––––(106) (106)
Recycled foreign exchange on disposal of subsidiary ––––22
Net fair value loss on cash flow hedges – – (56) – – (56)
Recognised in income and expense – – 179 – – 179
Fair value movement on available-for-sale assets – – – (3) – (3)
Tax recognised in other comprehensive income – – (22) – (1) (23)
At 1 April 2012 998 27 229 24 478 1,756
Exchange differences ––––4646
Recycled foreign exchange on disposal of subsidiary ––––1313
Net fair value loss on cash flow hedges – – 105 – – 105
Recognised in income and expense – – (168) – – (168)
Fair value movement on available-for-sale assets – – – 14 – 14
Tax recognised in other comprehensive income – – 14 – 10 24
At 31 March 2013 998 27 180 38 547 1,790
aThe merger reserve arose on the group reorganisation that occurred in November 2001 and represented the difference between the nominal value of shares in the new parent company,
BT Group plc, and the aggregate of the share capital, share premium account and capital redemption reserve of the prior parent company, British Telecommunications plc.
bThe cash flow reserve is used to record the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet
occurred. Amounts ‘recognised in income and expense’ include a net debit to the cash flow reserve of £180m (2011/12: net credit of £174m, 2010/11: net credit of £293m) relating to fair
value movements on derivatives. The items generating these foreign exchange movements are in designated cash flow hedge relationships.
cThe available-for-sale reserve is used to record the cumulative fair value gains and losses on available-for-sale financial assets. The cumulative gains and losses are recycled to the income
statement on disposal of the assets.
dThe translation reserve is used to record cumulative translation differences on the assets and liabilities of foreign operations. The cumulative translation differences are recycled to the income
statement on disposal of the foreign operation.