Virgin Media 2006 Annual Report Download - page 90

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (Continued)
Foreign Currency Translation
Our functional currency is the pound sterling. Exchange gains and losses on translation of our net equity investments in
subsidiaries are reported as a separate component of accumulated other comprehensive income (loss) in shareholders’ equity. Foreign
currency transaction gains and losses are recorded in the statement of operations.
Cash Equivalents and Restricted Cash
Cash equivalents are short−term highly liquid investments purchased with an original maturity of three months or less. We had
no cash equivalents as at December 31, 2006 and 2005, respectively.
Restricted cash balances of £6.0 million and £3.4 million as at December 31, 2006 and 2005, respectively, represent cash
balances collateralized against performance bonds given on our behalf.
Trade Receivables
Our trade receivables are stated at outstanding principal balance, net of allowance for doubtful accounts. Allowances for doubtful
accounts are estimated based on the current aging of trade receivables, prior collection experience and future expectations of
conditions that might impact recoverability. The allowance for doubtful accounts was £51.8 million at December 31, 2006 and
£41.7 million at December 31, 2005.
Concentrations of Credit Risk
Our financial instruments that are exposed to concentrations of credit risk consist primarily of trade receivables. Concentrations
of credit risk with respect to trade receivables are limited because of the large number of customers and their dispersion across
geographic areas. We perform periodic credit evaluations of our Business customers’ financial condition and generally do not require
collateral. At December 31, 2006, we did not have significant credit risk concentrations. No single group or customer represents
greater than 10% of total accounts receivable.
Inventory
Inventory consists of consumer goods for re−sale and programming inventory. Consumer goods for re−sale are valued at the
lower of cost or market value using the first−in, first−out (“FIFO”) method. Cost represents the as invoiced purchase cost of inventory.
This valuation requires us to make judgments, based on currently available information, about obsolete, slow−moving or defective
inventory. Based upon these judgments and estimates, which are applied consistently from period to period, we adjust the carrying
amount of our inventory for re−sale to the lower of cost or market value.
Programming inventory represents television programming libraries held by each of our television channels and is stated at the
lower of cost or market value. Programming is recognized as inventory when a contractual purchase obligation exists, it has been
delivered to us and is within its permitted broadcasting period. Programming inventory is periodically reviewed and a provision made
for impairment or obsolescence.
F−10
Source: VIRGIN MEDIA INVESTM, 10−K, March 01, 2007