BT 2001 Annual Report Download - page 73

Accounting policies
BT Annual report and Form 20-F 73
I Basis of preparation of the financial statements
The ¢nancial statements are prepared under the historical cost
convention and in accordance with applicable accounting
standardsandtheprovisionsoftheCompaniesAct1985.The
group ¢nancial statements consolidate those of the company and
all of its subsidiary undertakings (with one minor exception ^ see
note 20). Where the ¢nancial 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 ¢nancial
statements on a consistent basis. The principal subsidiary
undertakings’ ¢nancial years are all coterminous with those of the
company, with the exception of one newly acquired group at
31 March 2001. References to the ‘‘company’’ are to British
Telecommunications public limited company, and references to
‘‘BT’’ or the ‘‘group’’ are to the company and its subsidiaries, or
any of them as the context may require.
The preparation of ¢nancial statements requires
management to make estimates and assumptions that a¡ect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the ¢nancial
statements and the reported amounts of income and expenditure
during the reporting period. Actual results could di¡er 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 ¢gures have been
restated to conform with revised
presentation and reclassi¢cation of ¢gures in the year ended
31 March 2001.
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, excluding the
group’s share of transactions between the group and its principal
joint venture, Concert BV.
Turnover from calls is recognised in the group pro¢t and loss
account at the time the call is made over the group’s networks.
Turnover from rentals is recognised evenly over the period to
which the charges relate. Turnover from sales is recognised at the
point of sale. Prepaid call card sales are deferred until the
customer uses the stored value in the card to pay for the relevant
calls. Turnover from classi¢ed directories, mainly comprising
advertising revenue, is recognised in the group pro¢t and loss
account upon completion of delivery. Turnover arising from the
provision of other services, including maintenance contracts, is
recognised evenly over the periods in which the service is
provided to the customer.
III Research and development
Expenditure on research and development is written o¡
as incurred.
IV Interest
Interest payable, including that related to ¢nancing the
construction of tangible ¢xed assets, is written o¡ 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
writteno¡whenpaid.
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 di¡erences arising from the retranslation at year-
end exchange rates of the net investment in foreign undertakings,
less exchange di¡erences on borrowings which ¢nance 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
pro¢t and loss account.
Vl Intangibles
(a) 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 ¢nite 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 o¡ on acquisition against group reserves.
If an undertaking is subsequently divested, the appropriate
unamortised goodwill or goodwill written o¡ to reserves is dealt