BT 2014 Annual Report Download - page 135

132 Financial statements
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 dierences between the carrying amount of the group’s
assets and liabilities and their tax base. Deferred income tax assets and
liabilities are oset when there is a legally enforceable right to oset
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 dierent 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 prots, within the same jurisdiction, in the foreseeable
future against which the deductible temporary dierence 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 nancial statements consolidate the nancial 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 or investor. An investor controls an investee when
the investor is exposed, or has rights, to variable returns from its
involvement with the Investee and has the ability to aect those returns
through its power over the Investee. 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 nancial statements.
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 prot or loss on
disposal is calculated as the dierence 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 prot or loss on disposal is normally
recognised as a specic 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
identiable 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 identiable assets and
liabilities at the date of acquisition.
Impairment of non-nancial assets
Intangible assets with nite 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 ows
(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 specic item. If a
cash generating unit is impaired, impairment losses are allocated rstly
against goodwill, and secondly on a pro rata basis against intangible and
other assets.
Government grants
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.
Once a government grant is recognised, any related contingent liability
or contingent asset is treated in accordance with IAS37 Provisions,
Contingent Liabilities and Contingent Assets’.
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
reects 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 eects of the rates prevailing on the
transaction dates, in which case income and expenses are translated at
the dates of the transactions). Foreign exchange dierences arising on
retranslation are recognised directly in a separate component of equity,
the translation reserve.
3. SigniƬcant accounting policies continued