Carphone Warehouse 2016 Annual Report Download - page 96

Notes to the Group financial statements
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c) Foreign currency translation and transactions
Material transactions in foreign currencies are hedged using
forward purchases or sales of the relevant currencies and are
recognised in the financial statements at the exchange rates
thus obtained. Unhedged transactions are recorded at the
exchange rate on the date of the transaction. Material
monetary assets and liabilities denominated in foreign
currencies are hedged, mainly using forward foreign exchange
contracts to create matching liabilities and assets, and are
retranslated at each balance sheet date. Hedge accounting
as defined by IAS 39 ‘Financial Instruments: Recognition
and Measurement’ has been applied by marking to market
the relevant financial instruments at the balance sheet date
and recognising the gain or loss in reserves in respect of
cash flow hedges, and through profit or loss in respect of fair
value hedges.
The results of overseas operations are translated at the
average foreign exchange rates for the year, and their balance
sheets are translated at the rates prevailing at the balance
sheet date. Goodwill and acquisition intangible assets are held
in the currency of the operation to which they relate. Exchange
differences arising on the translation of net assets, goodwill
and results of overseas operations are recognised in the
translation reserve. All other exchange differences are included
in profit or loss in the year in which they arise except where the
Group designates financial instruments held for the purpose of
hedging the foreign currency exposures that result from
material transactions undertaken in foreign currencies as cash
flow hedges, hedge accounting as defined by IAS 39 ‘Financial
Instruments: Recognition and Measurement’ is applied. The
effective portion of changes in the fair value of financial
instruments that are designated as cash flow hedges is
recognised in other comprehensive income. The gain or loss
relating to the ineffective portion is recognised in profit or loss.
Amounts previously recognised in equity are reclassified to
profit or loss in the periods when the hedged item is
recognised in profit or loss.
Where a foreign operation is disposed of, the gain or loss on
disposal recognised in profit or loss is determined after taking
into account the cumulative currency translation differences
that are attributable to the operation. The principal exchange
rates against UK Sterling used in these financial statements are
as follows:
Average Closing
2016 2015 2016 2015
Euro 1.36 1.28 1.28 1.35
Norwegian Krone 12.51 10.86 11.77 11.51
Swedish Krona 12.65 11.85 11.74 12.72
d) Revenue
Revenue comprises sales of goods and services excluding
sales taxes. The following accounting policies are applied to
the principal revenue generating activities in which the Group
is engaged:
• revenue from the sale of goods is recognised at the point
of sale or, where later, upon delivery to the customer and
is stated net of returns;
• revenue earned from the sale of customer support
agreements is recognised over the term of the contracts
when the Group obtains the right to consideration as a result
of performance of its contractual obligations. Revenue in any
one year is recognised by reference to the stage of
completion of the contractual terms at the balance sheet
date. The stage of completion is estimated with reference to
the proportion of the expected costs of fulfilling the Group’s
total obligations under the agreements, determined by
reference to extensive historical claims data. Reliance on
historical data assumes that current and future experience
will follow past trends. The directors consider that the
quantity and quality of data available provides an appropriate
proxy for current trends;
• revenue arising on services (including delivery and
installation, product repairs and product support), is
recognised when the relevant services are provided;
• commission receivable on sales, being commission which is
contractually committed, and for which there are no ongoing
performance obligations, is recognised when the sales to
which the commission relates are made, net of any provision
for promotional offers and network operator performance
penalties. Commission includes a share of consumer airtime
spend, to the extent that it can be reliably measured and
there are no ongoing service obligations. Where the time
value of money has a material impact, an appropriate
discount is applied such that revenue is recognised at an
amount equal to the present value of the future
consideration to be received;
• other ongoing revenue is recognised as it is earned over the
lives of the relevant customers;
• volume bonuses receivable from network operators are
recognised when the conditions on which they are earned
have been met;
• insurance revenue relates to the sale of third party insurance
products. Sales commission received from third parties is
recognised when the insurance policies to which it relates
are sold, to the extent that it can be reliably measured and
there are no ongoing service obligations. Revenue from the
provision of insurance administration services is recognised
over the life of the relevant policies;
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