Vodafone 2005 Annual Report Download - page 86

Notes to the Consolidated Financial Statements continued
84 |Financials
2. Accounting policies continued
Investments
The Consolidated Financial Statements include investments in associated undertakings using the equity method of accounting. An associated undertaking is an entity in
which the Group has a participating interest and, in the opinion of the directors, can exercise significant influence over its operational and financial policies. The Consolidated
Profit and Loss Account includes the Group’s share of the operating profit or loss, exceptional items, interest income or expense and attributable taxation of those entities.
The Balance Sheet shows the Group’s share of the net assets or liabilities of those entities, together with loans advanced and attributed goodwill.
The Consolidated Financial Statements include investments in joint ventures using the gross equity method of accounting. A joint venture is an entity in which the Group has
a long-term interest and exercises joint control. Under the gross equity method, a form of the equity method of accounting, the Group’s share of the aggregate gross assets
and liabilities underlying the investment in the joint venture is included in the Balance Sheet and the Group’s share of the turnover of the joint venture is disclosed in the
Consolidated Profit and Loss Account.
Other investments, held as fixed assets, comprise equity shareholdings and other interests. They are stated at cost less provision for impairment. Dividend income is
recognised upon receipt and interest when receivable.
Stocks
Stocks are valued at the lower of cost and estimated net realisable value.
Trade debtors
Trade debtors are accounted for at cost. Allowances are maintained for bad and doubtful debts for estimated losses resulting from the inability of customers to make required
payments. Estimates are based on the ageing of the debt balances and historical experience. Debtors are written off when management deems them not to be collectable.
Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or
substantially enacted by the balance sheet date.
Deferred tax is provided in full on timing differences that exist at the balance sheet date and that result in an obligation to pay more tax, or a right to pay less tax in the future.
The deferred tax is measured at the rate expected to apply in the periods in which the timing differences are expected to reverse, based on the tax rates and laws that are
enacted or substantially enacted at the balance sheet date. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in
periods different from those in which they are included in the financial statements. Deferred tax is not provided on timing differences arising from the revaluation of fixed
assets where there is no binding commitment to sell the asset. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be
recovered. Deferred tax assets and liabilities are not discounted.
Leases
Rental costs under operating leases are charged to the profit and loss account in equal annual amounts over the periods of the leases.
Assets acquired under finance leases, which transfer substantially all the rights and obligations of ownership, are accounted for as though purchased outright. The fair value
of the asset at the inception of the lease is included in tangible fixed assets and the capital element of the leasing commitment included in creditors. Finance charges are
calculated on an actuarial basis and are allocated over each lease to produce a constant rate of charge on the outstanding balance.
Lease obligations which are satisfied by cash and other assets deposited with third parties are set-off against those assets in the Group’s balance sheet.