BT 1999 Annual Report Download - page 60

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IBasis of preparation of the financial statements
The financial statements are prepared under the historical
cost convention and in accordance with applicable
accounting standards and the provisions of the Companies
Act 1985. The group financial statements consolidate those
of the company and all of its subsidiary undertakings.
Where the financial statements of subsidiary undertakings,
associates and joint ventures 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 1999, required by Financial Reporting
Standards Nos 9 to 14.
II Turnover
Group turnover, which excludes value added tax and
other sales taxes, comprises the value of services provided
and equipment sales by group undertakings, excluding
those between them.
Total turnover is group turnover together with the group’s
share of its associates’ and joint ventures’ turnover.
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
undertakings and interests in associates and joint ventures,
represents the excess of the fair value of the purchase
consideration over the fair value of the net assets acquired.
For acquisitions completed on or after 1 April 1998, the
goodwill arising is capitalised as an intangible asset or, if
arising in respect of an associate or joint venture, recorded
as part of the related investment. In most cases, the
goodwill is amortised on a straight line basis from the time
of acquisition over its useful economic life. Where special
circumstances exist such that amortising goodwill over
a finite period would not give a true and fair view, that
goodwill is not amortised. The economic life is normally
presumed to be a maximum of 20 years.
For acquisitions on or before 31 March 1998, the goodwill
is written off on acquisition against group reserves.
If an undertaking is subsequently divested, the appropriate
unamortised goodwill is dealt with through the profit and
loss account in the period of disposal as part of the gain or
loss on divestment.
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
a straight 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.
Accounting policies