EasyJet 2014 Annual Report Download - page 106

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104 easyJet plc Annual report and accounts 2014
hinued
1 Significant accounting policies continued
Basis of consolidation
The consolidated accounts incorporate those of easyJet plc and its subsidiaries for the years ende September
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 shareholders’ equity until all or part of the
interest is sold, when the relevant portion of the accumulated 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
Revenue comprises seat revenue, being the value of airline services (net of air passenger duty, VAT and discounts), and
non-seat revenue.
Seat revenue arises from the sale of flight seats, including the provision of checked baggage, allocated seating, administration,
credit card and change fees. Seat revenue is recognised when the service is provided. This is generally when the flight takes
place, but in the following cases, this is at the time of booking:
administration and credit card fees, as they are contractually non-refundable; and
change fees, as the service provided is that of allowing customers to change bookings.
Amounts paid by ‘no-show’ customers are recognised as seat revenue when the booked service is provided as such customers
are not generally entitled to change flights or seek refunds once a flight has departed.
Unearned revenue represents flight seats, including the provision of checked baggage and allocated seating, 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.
Non-seat revenue arises from commissions earned from services sold on behalf of partners and is recognised when the service
is provided. This is generally when the related flight takes place. In the case of commission earned from travel insurance,
revenue is recognised at the time of booking as easyJet acts solely as appointed representative of the insurance company.
Business combinations
Business combinations in prior years were 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. There have been no business combinations since the effective date of Business
Combinations (Revised).
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.