EasyJet 2009 Annual Report Download - page 64

62 easyJet plc Annual report and accounts 2009
NOTES TO THE ACCOUNTS CONTINUED
1 Accounting policies (continued)
Basis of consolidation
The consolidated accounts incorporate those of easyJet plc and its subsidiaries for the years ended 30 September 2008 and 2009.
A subsidiary is an entity controlled by easyJet. Control exists when easyJet has the power, directly or indirectly, to govern the financial and operating policies
of an entity so as to benefit from its activities.
Intragroup balances, transactions and any unrealised gains and losses arising from intragroup transactions are eliminated in preparing the consolidated
accounts.
Foreign currencies
The primary economic environment in which a subsidiary operates determines its functional currency. The consolidated accounts of easyJet are presented in
sterling, which is the Company’s functional currency and the Group’s presentation currency. Certain subsidiaries have operations that are primarily influenced
by a currency other than sterling. Exchange differences arising on the translation of these foreign operations are taken to reserves until all or part of the
interest is sold, when the relevant portion of the exchange gains or losses is recognised in the income statement. Profits and losses of foreign operations are
translated into sterling at average rates of exchange during the year, since this approximates the rates on the dates of the transactions.
Transactions arising in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated into sterling using the rate of exchange ruling at the balance sheet date and (except where the asset or
liability is designated as a cash flow hedge) the gains or losses on translation are included in the income statement. Non-monetary assets and liabilities
denominated in foreign currencies are translated into sterling at foreign exchange rates ruling at the dates the transactions were effected.
Revenue recognition
Revenues comprise the invoiced value of airline services, net of air passenger duty, VAT and discounts, plus ancillary revenue.
Passenger revenue arises from the sale of flight seats and is recognised when the service is provided. Unearned revenue represents flight seats sold but not
yet flown and is included in trade and other payables until it is realised in the income statement when the service is provided.
Ancillary revenue is generally recognised when the flight to which it relates departs. Certain types of ancillary revenue are recognised at the time the benefit
of the service provided passes to the customer. Ancillary revenue in the form of fixed annual fees is recognised evenly throughout the year.
Amounts paid by “no-show” customers are recognised as passenger or ancillary revenue as appropriate when the booked service is provided as such
customers are not generally entitled to change flights or seek refunds once a flight has departed.
Business combinations
Business combinations are accounted for by applying the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given and liabilities incurred or assumed plus any costs directly attributable to the business combination. The acquiree’s identifiable
assets and liabilities are recognised at their fair values at the acquisition date. Goodwill arising on acquisition is recognised as an asset and initially measured at
cost, being the excess of the cost of the business combination over easyJet’s interest in the net fair value of the identifiable assets, liabilities and contingent
liabilities recognised.
Goodwill is stated at cost less any accumulated impairment losses. It has an indefinite expected useful life and is tested for impairment at least annually
or where there is any indication of impairment.
Landing rights are stated at cost less any accumulated impairment losses. They are considered to have an indefinite useful life as they will remain available
for use for the foreseeable future provided minimum utilisation requirements are observed, and are tested for impairment at least annually or where there
is any indication of impairment.
Other intangible assets are stated at cost less accumulated amortisation, which is calculated to write off their cost, less estimated residual value, on a
straight-line basis over their expected useful lives. Expected useful lives and residual values are reviewed annually.
Expected useful life
Computer software 3 years
Contractual rights Over the length of the related contracts
Goodwill and other intangible assets