BT 2015 Annual Report Download - page 156

154 BT Group plc
Annual Report 2015
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
eventuall vest and adusted for the eect of non aret-based vestin
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
stateent reversin all previousl reconised chares in the ear
in which they lapse or are forfeited.
erination benefits
erination benefits leaver costs are paable when eploent is
terminated before the normal retirement date, or when an employee
accepts voluntar redundanc in echane for these benefits. he roup
reconises terination benefits when it is deonstrabl coitted to
the aected eploees leavin the roup.
Financial instruments
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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 ethod.
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 subseuentl easured at aortised cost usin the eective interest
method and, if included in a fair value hedge relationship, are re-valued
to reect the fair value oveents on the heded ris associated with
the loans and other borrowings. The resulting amortisation of fair
value movements, on de-designation of the hedge, is recognised in
the incoe stateent.
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iuid and other investents are classified 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 ains and losses ecept for chanes in
exchange rates for monetary items, interest, dividends and impairment
losses, which are recognised in the income statement) recognised
in euit until the financial asset is dereconised at which tie the
cumulative gain or loss previously recognised in equity is taken to the
incoe stateent in the line that ost appropriatel 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
coprehensive incoe are re-classified to the incoe stateent.
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 epected to be sold within one ear.
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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 aortised cost usin the eective interest ethod less provisions
ade for doubtful receivables. rovisions are ade specificall where
there is evidence of a risk of non-payment, taking into account ageing,
previous losses experienced and general economic conditions.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and current balances
with banks and similar institutions, which are readily convertible to
cash and are subect to insinificant ris of chanes in value and have
an original maturity of three months or less. For the purpose of the
consolidated cash ow stateent cash and cash euivalents are as
defined above net of outstandin ban overdrafts. an overdrafts
are included within loans and other borrowings, in current liabilities
on the balance sheet.
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ll of the roups derivative financial instruents are held for tradin
and classified as fair value throuh profit or loss.
erivative financial instruents
he roup uses derivative financial instruents ainl to reduce
exposure to foreign exchange and interest rate risks. The group’s
policy is not to use derivatives for trading purposes. However,
derivatives that do not ualif for hede accountin or are specificall
not desinated as a hede where natural oset is ore appropriate are
initially recognised and subsequently measured at fair value through
profit and loss. n direct transaction costs are reconised iediatel
in the income statement. Gains and losses on re-measurement are
recognised in the income statement in the line that most appropriately
reects the nature of the ite or transaction to which the relate.
erivative financial instruents are classified as current assets or
current liabilities where they have a maturity period within 12 months.
here derivative financial instruents have a aturit period reater
than 1 onths the are classified within either non-current assets
or non-current liabilities.
Where the fair value of a derivative contract at initial recognition is not
supported b observable aret data and diers fro the transaction
price, a day one gain or loss will arise which is not recognised in the
income statement. Such gains and losses are deferred and amortised
to the income statement based on the remaining contractual term
and as observable market data becomes available.
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Where derivatives qualify for hedge accounting, recognition of any
resultant gain or loss depends on the nature of the hedge. To qualify
for hedge accounting, hedge documentation must be prepared at
inception and the hede ust be epected to be hihl eective both
prospectivel and retrospectivel. he hede is tested for eectiveness
at inception and in subsequent periods in which the hedge remains
in operation. Hedge accounting is discontinued when the hedging
instruent epires or is sold terinated or no loner ualifies for
hedge accounting or the group chooses to end the hedge relationship.
he roup desinates certain derivatives as either cash ow hedes
or fair value hedges.
ash ow hedes
hen a derivative financial instruent is desinated as a hede of
the variabilit in cash ows of a reconised asset or liabilit or a
hihl probable transaction the eective part of an ain or loss on
the derivative financial instruent is reconised directl in euit
in the cash ow reserve. or cash ow hedes of reconised assets
or liabilities, the associated cumulative gain or loss is removed from
equity and recognised in the same line of the income statement and
in the sae period or periods that the heded transaction aects the
incoe stateent. n ineectiveness arisin on a cash ow hede
of a recognised asset or liability is recognised immediately in the same
incoe stateent line as the heded ite. here ineectiveness
arises on highly probable transactions, it is recognised in the income
stateent line which ost appropriatel reects the nature of the
item or transaction.
Fair value hedges
hen a derivative financial instruent is desinated as a hede of the
variability in fair value of a recognised asset or liability, or unrecognised
fir coitent the chane in fair value of the derivative that is
designated as a fair value hedge is recorded in the income statement
at each reporting date, together with any changes in fair value of the
heded asset or liabilit that is attributable to the heded ris.
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