Vodafone 2010 Annual Report Download - page 122

120 Vodafone Group Plc Annual Report 2010
Notes to the Company nancial statements
1. Basis of preparation
The separate financial statements of the Company are drawn up in accordance with
the Companies Act 2006 and UK GAAP.
The preparation of Company 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 Company 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 408(3) of the Companies Act 2006, the profit and loss
account of the Company is not presented in this annual report. These separate
financial statements are not intended to give a true and fair view of the profit or loss
or cash flows of the Company. The Company has not published its individual cash
flow statement as its liquidity, solvency and financial adaptability are dependent on
the Group rather than its own cash flows.
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 disclosures that comply with FRS 29 are available in the Vodafone Group
Plc annual report for the year ended 31 March 2010.
2. Signicant 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 impairment.
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 investment 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.
Foreign currencies
Transactions in foreign currencies are initially recorded at the rates of exchange
prevailing on the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are retranslated into the Company’s functional
currency 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
rates prevailing on the initial transaction dates. Non-monetary items 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.
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
Company 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 company 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 issuance 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 remeasured 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,
no longer qualifies for hedge accounting or the Company chooses to end the
hedging relationship.