Vodafone 2009 Annual Report Download - page 82

80 Vodafone Group Plc Annual Report 2009
Deferred tax is the tax expected to be payable or recoverable in the future arising from
temporary differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of
taxable profit. It is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from
the initial recognition (other than in a business combination) of assets and liabilities
in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are not recognised to the extent they arise from the initial
recognition of goodwill.
Deferred tax liabilities are recognised for taxable temporary differences arising on
investments in subsidiaries and associates, and interests in joint ventures, except where
the Group is able to control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date
and adjusted to reflect changes in probability that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period
when the liability is settled or the asset realised, based on tax rates that have been
enacted or substantively enacted by the balance sheet date.
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 either relate to income
taxes levied by the same taxation authority on either the same taxable entity or on
different taxable entities which intend to settle the current tax assets and liabilities
on a net basis.
Tax is charged or credited to the income statement, except when it relates to items
charged or credited directly to equity, in which case the tax is also recognised directly
in equity.
Financial instruments
Financial assets and financial liabilities, in respect of financial instruments, are
recognised on the Group’s balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
Trade receivables
Trade receivables do not carry any interest and are stated at their nominal value as
reduced by appropriate allowances for estimated irrecoverable amounts. Estimated
irrecoverable amounts are based on the ageing of the receivable balances and
historical experience. Individual trade receivables are written off when management
deems them not to be collectible.
Other investments
Other investments are recognised and derecognised on a trade date where a
purchase or sale of an investment is under a contract whose terms require delivery
of the investment within the timeframe established by the market concerned, and
are initially measured at cost, including transaction costs.
Other investments classified as held for trading and available-for-sale are stated at
fair value. Where securities are held for trading purposes, gains and losses arising
from changes in fair value are included in net profit or loss for the period. 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 cost method, is included in the net profit or loss for
the period.
Other investments classified as loans and receivables are stated at amortised cost
using the effective interest method, less any impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and other short
term highly liquid investments that are readily convertible to a known amount of cash
and are subject to an insignificant risk of changes in value.
2. Signicant accounting policies continued
Translation differences on non-monetary financial assets, such as investments in
equity securities, classified as available for sale are reported as part of the fair value
gain or loss and are included in equity.
For the purpose of presenting consolidated financial statements, the assets and
liabilities of entities with a functional currency other than sterling are expressed in
sterling using exchange rates prevailing on the balance sheet date. Income and
expense items and cash flows are translated at the average exchange rates for the
period and exchange differences arising are recognised directly in equity. On disposal
of a foreign entity, the cumulative amount previously recognised in equity relating
to that particular foreign operation is recognised in profit or loss.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation
are treated as assets and liabilities of the foreign operation and translated accordingly.
In respect of all foreign operations, any exchange differences that have arisen before
1 April 2004, the date of transition to IFRS, are deemed to be nil and will be excluded
from the determination of any subsequent profit or loss on disposal.
The net foreign exchange loss recognised in the consolidated income statement
for continuing operations is £131 million (2008: £373 million gain, 2007: £92 million
loss). A loss of £794 million was recognised in the 2007 financial year for
discontinued operations.
Research expenditure
Expenditure on research activities is recognised as an expense in the period in which
it is incurred.
Borrowing costs
All borrowing costs are recognised in the income statement in the period in which
they are incurred.
Post employment benets
For defined benefit retirement plans, the difference between the fair value of the plan
assets and the present value of the plan liabilities is recognised as an asset or liability
on the balance sheet. Scheme liabilities are assessed using the projected unit funding
method and applying the principal actuarial assumptions as at the balance sheet
date. Assets are valued at market value.
Actuarial gains and losses are taken to the statement of recognised income and
expense as incurred. For this purpose, actuarial gains and losses comprise both the
effects of changes in actuarial assumptions and experience adjustments arising
because of differences between the previous actuarial assumptions and what has
actually occurred.
Other movements in the net surplus or deficit are recognised in the income statement,
in cluding the c urrent ser vice cost , any past service cost an d t he ef fect of any curtail ment
or settlements. The interest cost less the expected return on assets is also charged to
the income statement. The amount charged to the income statement in respect of
these plans is included within operating costs or in the Group’s share of the results of
equity accounted operations as appropriate.
The Group’s contributions to defined contribution pension plans are charged to the
income statement as they fall due.
Cumulative actuarial gains and losses as at 1 April 2004, the date of transition to IFRS,
have been recognised in the balance sheet.
Taxation
Income tax expense represents the sum of the current tax payable and deferred tax.
Current tax payable or recoverable is based on taxable profit for the year. Taxable
profit differs from profit as reported in the income statement because some items of
income or expense are taxable or deductible in different years or may never be
taxable or deductible. The Group’s liability for current tax is calculated using UK and
foreign tax rates and laws that have been enacted or substantively enacted by the
balance sheet date.
Notes to the consolidated nancial statements continued