BT 2014 Annual Report Download - page 136

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Financial statements
Financial statements
In the event of the disposal of an undertaking with assets and
liabilities denominated in a foreign currency, the cumulative translation
dierence 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 benets will ow 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 fullment of the arrangement is dependent on the use of
a specic 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 classied
as nance 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 nance leases, net of nance charges in respect
of future periods, are recognised as liabilities. Leases are subsequently
measured at amortised cost using the eective interest method.
Leases where a signicant portion of the risks and rewards are held by
the lessor are classied 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 eect 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 eect 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 saveshare 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 all previously recognised charges) in the year
in which they lapse or are forfeited.
Termination benets
Termination benets (leaver costs) are payable when employment is
terminated before the normal retirement date, or when an employee
accepts voluntary redundancy in exchange for these benets. The group
recognises termination benets when it is demonstrably committed to
the aected employees leaving the group.
Financial instruments
Financial liabilities at amortised cost
Trade and other payables
Financial liabilities within trade and other payables are initially
recognised at fair value, which is usually the original invoiced
amount, and subsequently carried at amortised cost using the
eective interest method.
Loans and other borrowings
Loans and other borrowings are initially recognised at the fair value of
amounts received net of transaction costs. Loans and other borrowings
are subsequently measured at amortised cost using the eective interest
method and, if included in a fair value hedge relationship, are re-valued
to reect the fair value movements on the hedged risk associated with
the loans and other borrowings. The resulting amortisation of fair
value movements, on de-designation of the hedge, is recognised in
the income statement.
Available-for-sale investments
Liquid and other investments are classied as available-for-sale
investments and are initially recognised at fair value plus direct
transaction costs and then re-measured at subsequent reporting dates
to fair value, with unrealised gains and losses (except for changes in
exchange rates for monetary items, interest, dividends and impairment
losses, which are recognised in the income statement) recognised
in equity until the nancial asset is derecognised, at which time the
cumulative gain or loss previously recognised in equity is taken to the
income statement, in the line that most appropriately reects the
nature of the item or transaction. On disposal or impairment of the
investments, any gains and losses that have been deferred in other
comprehensive income are re-classied to the income statement.
Dividends on equity investments are recognised in the income
statement when the group’s right to receive payment is established.
Equity investments are recorded in non-current assets unless
they are expected to be sold within one year.
Loans and receivables
Trade and other receivables
Trade and other receivables are initially recognised at fair value, which
is usually the original invoiced amount, and are subsequently carried at
amortised cost, using the eective interest method, less provisions made
for doubtful receivables. Provisions are made specically where there is
evidence of a risk of non-payment, taking into account ageing, previous
losses experienced and general economic conditions.
3. SigniƬcant accounting policies continued