BT 1998 Annual Report Download - page 45

IBasis of preparation of the financial statements
The financial statements are prepared under the historical
cost convention and in accordance with applicable
accounting standards. The group financial statements
consolidate those of the company and all of its subsidiary
undertakings. Where the financial statements of
subsidiary and associated undertakings do not conform
with the group’s accounting policies, appropriate
adjustments are made on consolidation in order to present
the group financial statements on a consistent basis.
The principal subsidiary undertakings’ financial years are
all coterminous with those of the company.
The preparation of financial statements 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 income
and expenditure during the reporting period. Actual results
could differ from those estimates. Estimates are used
principally when accounting for income, provision for
doubtful debts, payments to telecommunication operators,
depreciation, employee pension schemes and taxes. Certain
comparative figures have been restated to conform with
revised presentation and reclassification of figures in the
year ended 31 March 1998.
II Turnover
Turnover, which excludes value added tax and other
sales taxes, comprises the value of services provided
and equipment sales excluding those between
group undertakings.
III Research and development
Expenditure on research and development is written off
as incurred.
IV Interest
Interest payable, including that related to financing the
construction of tangible fixed assets, is written off as
incurred. Discounts or premiums and expenses on the
issue of debt securities are amortised over the term of
the related security and included within interest payable.
Premiums payable on early redemptions of debt securities,
in lieu of future interest costs, are written off when paid.
V Foreign currencies
On consolidation, assets and liabilities of foreign
undertakings are translated into sterling at year-end
exchange rates. The results of foreign undertakings are
translated into sterling at average rates of exchange for
the year.
Exchange differences arising from the retranslation at
year-end exchange rates of the net investment in foreign
undertakings, less exchange differences on borrowings
which finance or provide a hedge against those
undertakings, are taken to reserves and are reported
in the statement of total recognised gains and losses.
All other exchange gains or losses are dealt with through
the profit and loss account.
VI Goodwill
Goodwill, arising from the purchase of subsidiary and
associated undertakings, representing the excess of the
fair value of the purchase consideration over the fair value
of the net assets acquired, is written off on acquisition
against group reserves. If an undertaking is subsequently
divested, or if there has been a permanent diminution in
value, the appropriate goodwill is dealt with through the
profit and loss account in the period of disposal as part of
the calculation of gain or loss on divestment or in the
period of permanent diminution.
VII Tangible fixed assets
Tangible fixed assets are stated at historical cost
less depreciation.
(a) Cost
Cost in the case of network services comprises
expenditure up to and including the last distribution point
and includes contractors’ charges and payments on
account, materials, direct labour and related overheads.
(b) Depreciation
Depreciation is provided on tangible fixed assets on
astraight line basis from the time they are available
for use, so as to write off their costs over their estimated
useful lives taking into account any expected residual
values. No depreciation is provided on freehold land.
The lives assigned to other significant tangible fixed
assets are:
Freehold buildings – 40 years
Leasehold land Unexpired portion of
and buildings – lease or 40 years,
whichever is
the shorter
Transmission equipment:
duct – 25 years
cable – 3 to 25 years
radio and repeater equipment – 2 to 25 years
Digital telephone
exchange equipment – 2 to 13 years
Computers and office equipment – 2 to 7 years
Payphones, other network
equipment, motor vehicles
and cableships – 3 to 20 years
Accounting policies