Vodafone 2008 Annual Report Download - page 93

1. Basis of preparation
The Consolidated Financial Statements are prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”). The Consolidated Financial Statements are
also prepared in accordance with IFRS adopted by the European Union (“EU”),
the Companies Act 1985 and Article 4 of the EU IAS Regulations.
The preparation of financial statements in conformity with IFRS 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. For a discussion on the Group’s
critical accounting estimates see “Critical Accounting Estimates” on page 85.
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.
Amounts in the Consolidated Financial Statements are stated in pounds sterling.
2. Significant accounting policies
Accounting convention
The Consolidated Financial Statements are prepared on a historical cost basis
except for certain financial and equity instruments that have been measured
at fair value.
Basis of consolidation
The Consolidated Financial Statements incorporate the financial statements of
the Company and entities controlled, both unilaterally and jointly, by the Company.
Accounting for subsidiaries
A subsidiary is an entity controlled by the Company. Control is achieved where the
Company has the power to govern the financial and operating policies of an entity
so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in
the income statement from the effective date of acquisition or up to the effective
date of disposal, as appropriate. Where necessary, adjustments are made to the
financial statements of subsidiaries to bring their accounting policies into line with
those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Minority interests in the net assets of consolidated subsidiaries are identified
separately from the Group’s equity therein. Minority interests consist of the
amount of those interests at the date of the original business combination and
the minority’s share of changes in equity since the date of the combination.
Losses applicable to the minority in excess of the minority’s share of changes in
equity are allocated against the interests of the Group except to the extent that
the minority has a binding obligation and is able to make an additional investment
to cover the losses.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method.
The cost of the acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquiree, plus any
costs directly attributable to the business combination. The acquiree’s identifiable
assets and liabilities are recognised at their fair values at the acquisition date.
Goodwill arising on acquisition is recognised as an asset and initially measured
at cost, being the excess of the cost of the business combination over the Group’s
interest in the net fair value of the identifiable assets, liabilities and contingent
liabilities recognised.
The interest of minority shareholders in the acquiree is initially measured at the
minority’s proportion of the net fair value of the assets, liabilities and contingent
liabilities recognised.
Previously held identifiable assets, liabilities and contingent liabilities of the
acquired entity are revalued to their fair value at the date of acquisition, being the
date at which the Group achieves control of the acquiree. The movement in fair
value is taken to the asset revaluation surplus.
Interests in joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties
undertake an economic activity that is subject to joint control; that is, when the
strategic financial and operating policy decisions relating to the activities require
the unanimous consent of the parties sharing control.
The Group reports its interests in jointly controlled entities using proportionate
consolidation. The Group’s share of the assets, liabilities, income, expenses and
cash flows of jointly controlled entities are combined with the equivalent items
in the results on a line-by-line basis.
Any goodwill arising on the acquisition of the Group’s interest in a jointly
controlled entity is accounted for in accordance with the Group’s accounting
policy for goodwill arising on the acquisition of a subsidiary.
Investments in associates
An associate is an entity over which the Group has significant influence and that
is neither a subsidiary nor an interest in a joint venture. Significant influence is the
power to participate in the financial and operating policy decisions of the investee
but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in the
Consolidated Financial Statements using the equity method of accounting.
Under the equity method, investments in associates are carried in the consolidated
balance sheet at cost as adjusted for post-acquisition changes in the Group’s
share of the net assets of the associate, less any impairment in the value of the
investment. Losses of an associate in excess of the Group’s interest in that
associate are not recognised. Additional losses are provided for, and a liability is
recognised, only to the extent that the Group has incurred legal or constructive
obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the Group’s share of the net fair value
of the identifiable assets, liabilities and contingent liabilities of the associate
recognised at the date of acquisition is recognised as goodwill. The goodwill is
included within the carrying amount of the investment.
The licences of the Group’s associated undertaking in the US, Verizon Wireless,
are indefinite lived assets as they are subject to perfunctory renewal. Accordingly,
they are not subject to amortisation but are tested annually for impairment,
or when indicators exist that the carrying value is not recoverable.
Intangible assets
Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the
cost of acquisition over the Group’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities of the entity recognised at the date
of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured
at cost less any accumulated impairment losses. Goodwill is held in the currency
of the acquired entity and revalued to the closing rate at each balance sheet date.
Goodwill is not subject to amortisation but is tested for impairment.
Negative goodwill arising on an acquisition is recognised directly in the income
statement.
On disposal of a subsidiary or a jointly controlled entity, the attributable amount
of goodwill is included in the determination of the profit or loss recognised in the
income statement on disposal.
Vodafone Group Plc Annual Report 2008 91
Notes to the Consolidated Financial Statements