EasyJet 2010 Annual Report Download - page 66

easyJet plc
Annual report and accounts 2010
Notes to the accounts
continued
64
1 Accounting policies continued
Tax
Tax expense in the income statement consists of current and deferred tax. The charge for current tax is based on the results for the
year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income.
Tax is recognised in the income statement except when it relates to items credited or charged directly to other comprehensive income
or shareholders’ equity, in which case it is recognised in other comprehensive income or shareholders’ equity.
Deferred tax is provided in full on temporary differences relating to the carrying amount of assets and liabilities, where it is probable that
the recovery or settlement will result in an obligation to pay more, or a right to pay less, tax in the future, with the following exceptions:
– where the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other
assets and liabilities in a transaction that affects neither taxable income nor accounting profit.
– deferred tax arising on investments in subsidiaries is not recognised where easyJet is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which recovery of
assets and settlement of liabilities are expected to take place, based on tax rates or laws enacted or substantively enacted at the balance
sheet date.
Deferred tax assets represent amounts recoverable in future periods in respect of deductible temporary differences, losses and tax credits
carried forward. Deferred tax assets are recognised to the extent that it is probable that there will be suitable taxable profits from which
they can be deducted.
Deferred tax liabilities represent the amount of income taxes payable in future periods in respect of taxable temporary differences.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and it is the intention to settle these on a net basis.
Aircraft maintenance provisions
The accounting for the cost of providing major airframe and certain engine maintenance checks for owned and finance leased aircraft
is described in the accounting policy for property, plant and equipment.
easyJet has contractual obligations to maintain aircraft held under operating leases. Provisions are created over the term of the lease based
on the estimated future costs of major airframe checks, engine shop visits and end of lease liabilities. These costs are discounted to present
value where the amount of the discount is considered material.
A number of leases also require easyJet to pay supplemental rent to the lessor. Payments may be either a fixed monthly sum up to a cap
or are based on usage. The purpose of these payments is to provide the lessor with collateral should an aircraft be returned in a condition
that does not meet the requirements of the lease. Supplemental rent is either refunded when qualifying maintenance is performed, or is
offset against end of lease liabilities. Where the amount of supplemental rent paid exceeds the estimated amount recoverable from the
lessor, provision is made for the non-recoverable amount.
Employee benefits
easyJet contributes to defined contribution pension schemes for the benefit of employees. easyJet has no further payment obligations once
the contributions have been paid. The assets of the schemes are held separately from those of easyJet in independently administered
funds. easyJet’s contributions are charged to the income statement in the year in which they are incurred.
The expected cost of compensated holidays is recognised at the time that the related employees’ services are provided.
Share-based payments
easyJet has a number of equity-settled share incentive schemes. The fair value of share options is measured at the date of grant using the
Binomial Lattice option pricing model. The fair value of awards under the Long Term Incentive and Share Incentive Plans is the share price
at the date of grant.
The fair value of the estimated number of options and awards that are expected to vest is expensed to the income statement on a
straight-line basis over the period that employees’ services are rendered, with a corresponding increase in shareholders’ equity. Where
performance criteria attached to the share options and awards are not met, any cumulative expense previously recognised is reversed.
The social security obligations payable in connection with grant of the share options is an integral part of the grant itself and the charge is
treated as a cash-settled transaction.
easyJet settles share awards under the Long Term Incentive and Share Incentive Plans by purchasing its own shares on the market through
employee share trusts. The cost of such purchases is deducted from retained earnings in the period that the transaction occurs.