National Grid 2011 Annual Report Download - page 31

National Grid Gas plc Annual Report and Accounts 2010/11 29
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 when they relate to income taxes
levied by the same taxation authority and it is intended to settle
current tax assets and liabilities on a net basis.
H. Inventories
Inventories, which comprise raw materials and consumables,
are stated at cost less provision for damage and obsolescence.
Cost comprises cost of direct materials and those costs that
have been incurred in bringing the inventories to their present
location and condition.
I. Environmental costs
Provision is made for environmental costs arising from past
operations, based on future estimated expenditures, discounted
to present values. Changes in the provision arising from revised
estimates or discount rates or changes in the expected timing of
expenditures are recognised in the income statement. The
unwinding of the discount is included within the income
statement as a financing charge.
J. Revenue
Revenue represents the sales value derived from the
transmission and distribution of gas and the provision of gas
metering services during the year including assessment of the
value of services provided, but not invoiced at the year end. It
excludes value added tax and intra-group sales.
The sales value for the transmission and distribution of gas is
largely determined from the amount of system capacity sold for
the year and the amount of gas transported in the year,
evaluated at contractual prices on a monthly basis. Where
revenue for the year exceeds the maximum amount permitted
by regulatory agreement and adjustments will be made to future
prices to reflect this over-recovery, a liability for the over-
recovery is not recognised as such an adjustment to future
prices relates to the provision of future services. Similarly, an
asset is not recognised where a regulatory agreement permits
adjustments to be made to future prices in respect of an under-
recovery.
The sales value for the provision of gas metering services is
largely derived from monthly charges for the provision of
individual meters under contractual arrangements.
Income arising from the sale of properties as a result of property
management activities, from the sale of emission allowances
and from the recovery of pension deficit from other gas
transporters under regulatory arrangements is reported under
other operating income
K. Segmental information
Segmental information is based on the information the Board of
Directors uses internally for the purposes of evaluating the
performance of operating segments and determining resource
allocation between operating segments. The Board of Directors
is deemed to be the chief operating decision-maker and
assesses the performance of operations principally on the basis
of operating items before exceptionals and remeasurements.
L. Pensions
The substantial majority of the Company’s employees are
members of the defined benefit section of the National Grid UK
Pension Scheme. There is no contractual arrangement or
stated policy for charging the net defined benefit cost of the
Scheme to the Company. Accordingly, the Scheme is
recognised as if it were a defined contribution scheme. The
pension charge for the year represents the contributions
payable to the Scheme for the period. A share of the assets and
liabilities, or the actuarial gains and losses of the Scheme are
not recognised in these financial statements.
M. Leases
Rentals under operating leases are charged to income on a
straight-line basis over the term of the relevant lease.
N. Financial instruments
Financial assets, liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into, and recognised on trade date. Available-for-sale
financial assets are non-derivatives that are either designated in
this category or not classified in any other categories.
Trade receivables are initially recognised at fair value and
subsequently measured at amortised cost, less any appropriate
allowances for estimated irrecoverable amounts. A provision is
established for irrecoverable amounts when there is objective
evidence that amounts due under the original payment terms
will not be collected. Indications that the trade receivable may
become irrecoverable would include financial difficulties of the
debtor, likelihood of the debtor’s insolvency, and default or
significant failure of payment. Trade payables are initially
recognised at fair value and subsequently measured at
amortised cost.
Loans receivable and other receivables are carried at amortised
cost using the effective interest rate method. Interest income,
together with gains and losses when the loans and receivables
are derecognised or impaired, are recognised in the income
statement.
Other financial investments are recognised at fair value plus, in
the case of available-for-sale financial investments, directly
related incremental transaction costs and are subsequently
carried at fair value on the balance sheet. Changes in the fair
value of investments classified as fair value through profit and
loss are included in the income statement, while changes in the
fair value of investments classified as available-for-sale are
recognised directly in equity, until the investment is disposed of
or is determined to be impaired. At this time, the cumulative