Vodafone 2011 Annual Report Download - page 89

Vodafone Group Plc Annual Report 2011 87
Financials
Inventory
Inventory is stated at the lower of cost and net realisable value. Cost is
determined on the basis of weighted average costs and comprises direct
materials and, where applicable, direct labour costs and those overheads
that have been incurred in bringing the inventories to their present location
and condition.
Leasing
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership of the asset to
the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at
their fair value at the inception of the lease or, if lower, at the present value
of the minimum lease payments as determined at the inception of the lease.
The corresponding liability to the lessor is included in the statement of
financial position as a finance lease obligation. Lease payments are
apportioned between finance charges and reduction of the lease obligation
so as to achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are recognised in the income statement.
Rentals payable under operating leases are charged to the income
statement on a straight-line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight-line basis over the lease term.
Foreign currencies
The consolidated financial statements are presented in sterling, which is
the parent company’s functional and presentation currency. Each entity
in the Group determines its own functional currency and items included
in the financial statements of each entity are measured using that
functional currency.
Transactions in foreign currencies are initially recorded at the functional
currency rate prevailing at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated into the
respective functional currency of the entity at the rates prevailing on the
reporting period 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.
Changes in the fair value of monetary securities denominated in foreign
currency classified as available-for-sale are analysed between translation
differences and other changes in the carrying amount of the security.
Translation differences are recognised in the income statement and other
changes in carrying amount are recognised in equity.
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 at the reporting period
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.
Revenue
Revenue is recognised to the extent the Group has delivered goods or
rendered services under an agreement, the amount of revenue can be
measured reliably and it is probable that the economic benefits associated
with the transaction will flow to the Group. Revenue is measured at the fair
value of the consideration received, exclusive of sales taxes and discounts.
The Group principally obtains revenue from providing the following
telecommunication services: access charges, airtime usage, messaging,
interconnect fees, data services and information provision, connection fees
and equipment sales. Products and services may be sold separately or in
bundled packages.
Revenue for access charges, airtime usage and messaging by contract
customers is recognised as services are performed, with unbilled revenue
resulting from services already provided accrued at the end of each period
and unearned revenue from services to be provided in future periods
deferred. Revenue from the sale of prepaid credit is deferred until such time
as the customer uses the airtime, or the credit expires.
Revenue from interconnect fees is recognised at the time the services
are performed.
Revenue from data services and information provision is recognised when
the Group has performed the related service and, depending on the nature
of the service, is recognised either at the gross amount billed to the
customer or the amount receivable by the Group as commission for
facilitating the service.
Customer connection revenue is recognised together with the related
equipment revenue to the extent that the aggregate equipment and
connection revenue does not exceed the fair value of the equipment
delivered to the customer. Any customer connection revenue not
recognised together with related equipment revenue is deferred and
recognised over the period in which services are expected to be provided to
the customer.
Revenue for device sales is recognised when the device is delivered to the
end customer and the sale is considered complete. For device sales made
to intermediaries, revenue is recognised if the significant risks associated
with the device are transferred to the intermediary and the intermediary has
no general right of return. If the significant risks are not transferred, revenue
recognition is deferred until sale of the device to an end customer by the
intermediary or the expiry of the right of return.
In revenue arrangements including more than one deliverable, the
arrangements are divided into separate units of accounting. Deliverables are
considered separate units of accounting if the following two conditions are
met: (1) the deliverable has value to the customer on a stand-alone basis and
(2) there is evidence of the fair value of the item. The arrangement
consideration is allocated to each separate unit of accounting based on its
relative fair value.
Commissions
Intermediaries are given cash incentives by the Group to connect new
customers and upgrade existing customers.
For intermediaries who do not purchase products and services from the
Group, such cash incentives are accounted for as an expense. Such cash
incentives to other intermediaries are also accounted for as an expense if:
■the Group receives an identifiable benefit in exchange for the cash
incentive that is separable from sales transactions to that
intermediary; and
■the Group can reliably estimate the fair value of that benefit.
Cash incentives that do not meet these criteria are recognised as a reduction
of the related revenue.