Vodafone 2007 Annual Report Download - page 146

144 Vodafone Group Plc Annual Report 2007
1. Basis of preparation
The separate financial statements of the Company are drawn up in
accordance with the Companies Act 1985 and UK generally accepted
accounting principles (“UK GAAP”).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. The estimates
and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimate is
revised if the revision affects only that period or in the period of the revision and
future periods if the revision affects both current and future periods.
As permitted by Section 230 of the Companies Act 1985, the profit and loss
account of the Company is not presented in this Annual Report.
The Company has taken advantage of the exemption contained in FRS 1
“Cash flow statements” and has not produced a cash flow statement.
The Company has taken advantage of the exemption contained in FRS 8
“Related party disclosures” and has not reported transactions with fellow
Group undertakings.
The Company has taken advantage of the exemption contained in FRS 29
“Financial Instruments: Disclosures” and has not produced any disclosures
required by that standard, as full FRS 29 disclosures are available in the
Vodafone Group Plc Annual Report for the year ended 31 March 2007.
2. Significant accounting policies
The Company’s significant accounting policies are described below.
Accounting convention
The Company Financial Statements are prepared under the historical cost
convention and in accordance with applicable accounting standards of the
UK Accounting Standards Board and pronouncements of the Urgent Issues
Task Force.
Investments
Shares in Group undertakings are stated at cost less any provision for
permanent diminution in value.
The Company assesses investments for impairment whenever events or
changes in circumstances indicate that the carrying value of an investment
may not be recoverable. If any such indication of impairment exists, the
Company makes an estimate of the recoverable amount. If the recoverable
amount of the cash-generating unit is less than the value of the investment,
the investment is considered to be impaired and is written down to its
recoverable amount. An impairment loss is recognised immediately in the
profit and loss account.
For available-for-sale investments, gains and losses arising from changes in
fair value are recognised directly in equity, until the security is disposed of or
is determined to be impaired, at which time the cumulative gain or loss
previously recognised in equity, determined using the weighted average costs
method, is included in the net profit or loss for the period.
Foreign currencies
In preparing the financial statements of the Company, transactions in
currencies other than the Company’s functional currency are recorded at the
rates of exchange prevailing on the dates of the transactions. At each balance
sheet date, monetary items denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date. Non-monetary
items carried at fair value that are denominated in foreign currencies are
retranslated at the rate prevailing on the date when fair value was
determined. Non-monetary items that are measured in terms of historical
cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on
the retranslation of monetary items, are included in the profit and loss
account for the period. Exchange differences arising on the retranslation of
non-monetary items carried at fair value are included in the profit and loss
account for the period except for differences arising on the retranslation of
non-monetary items in respect of which gains and losses are recognised
directly in equity. For such non-monetary items, any exchange component of
that gain or loss is also recognised directly in equity.
Borrowing costs
All borrowing costs are recognised in the profit and loss account in the period
in which they are incurred.
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 substantively 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 substantively 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 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.
Financial instruments
Financial assets and financial liabilities, in respect of financial instruments, are
recognised on the balance sheet when the Company becomes a party to the
contractual provisions of the instrument.
Financial liabilities and equity instruments
Financial liabilities and equity instruments issued by the Company are
classified according to the substance of the contractual arrangements
entered into and the definitions of a financial liability and an equity
instrument. An equity instrument is any contract that evidences a residual
interest in the assets of the Company after deducting all of its liabilities and
includes no obligation to deliver cash or other financial assets. The
accounting policies adopted for specific financial liabilities and equity
instruments are set out below.
Capital market and bank borrowings
Interest-bearing loans and overdrafts are initially measured at fair value
(which is equal to cost at inception), and are subsequently measured at
amortised cost, using the effective interest rate method, except where they
are identified as a hedged item in a fair value hedge. Any difference between
the proceeds net of transaction costs and the settlement or redemption of
borrowings is recognised over the term of the borrowing.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The Company’s activities expose it to the financial risks of changes in foreign
exchange rates and interest rates.
The use of financial derivatives is governed by the Group’s policies approved
by the board of directors, which provide written principles on the use of
financial derivatives consistent with the Group’s risk management strategy.
Derivative financial instruments are initially measured at fair value on the
contract date, and are subsequently re-measured to fair value at each
reporting date. The Company designates certain derivatives as hedges of the
change of fair value of recognised assets and liabilities (“fair value hedges”).
Hedge accounting is discontinued when the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge accounting.
Notes to the Company Financial Statements