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National Grid Electricity Transmission Annual Report and Accounts 2006/07 73
loss account. An equal and opposite amount is recorded as an
adjustment to the carrying value of hedged items, with a
corresponding entry in the profit and loss account, to the extent
that the change is attributable to the risk being hedged and that
the fair value hedge is effective.
Changes in the fair value of derivatives that do not qualify for
hedge accounting are recognised in the profit and loss account
as they arise.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer
qualifies for hedge accounting. At that time, any cumulative
gains or losses relating to cash flow hedges recognised in
equity are initially retained in equity and subsequently
recognised in the profit and loss account in the same periods in
which the previously hedged item affects net profit or loss. For
fair value hedges, the cumulative adjustment recorded to its
carrying value, at the date hedge accounting is discontinued, is
amortised to the profit and loss account using the effective
interest method.
If a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in equity is transferred to the
profit and loss account immediately.
Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives when their
risks and characteristics are not closely related to those of host
contracts.
(m) Share-based payments
National Grid issues equity-settled share-based payments to
certain employees of the Company. Equity-settled share-based
payments are measured at fair value at the date of grant. The
fair value determined at the grant date of the equity-settled
share-based payments, based on an estimate of shares that will
eventually vest, is recognised by the Company on a straight-line
basis over the vesting period, as an operating cost and an
increase in equity and. Payments made by the Company to
National Grid in respect of share-based payments are
recognised as a reduction in equity.
(n) Restructuring costs
Costs arising from the Company’s restructuring programmes
primarily relate to redundancy costs. Redundancy costs are
charged to the profit and loss account in the period in which the
Company becomes irrevocably committed to incurring the costs
and the main features of the restructuring plan have been
announced to affected employees.
(o) Dividends
Dividends are recognised in the financial year in which they are
approved.