BT 2009 Annual Report Download - page 84

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
82 BT GROUP PLC ANNUAL REPORT & FORM 20-F
If a cash generating unit is impaired, provision is made to reduce
the carrying amount of the related assets to their estimated
recoverable amount, normally as a specific item. Impairment losses
are allocated firstly against goodwill, and secondly on a pro rata
basis against intangible and other assets.
Where an impairment loss has been recognised against an asset,
it may be reversed in future periods where there has been a change
in the estimates used to determine the recoverable amount since
the last impairment loss was recognised, but only to the extent that
the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised. This does
not apply for goodwill, for which an impairment loss may not be
reversed in any circumstances.
(xiii) Inventory
Inventory mainly comprises items of equipment held for sale or
rental and consumable items.
Equipment held and consumable items are stated at the lower
of cost and estimated net realisable value, after provisions for
obsolescence. Cost is calculated on a first-in-first-out basis.
(xiv) Termination benefits
Termination benefits (leaver costs) are payable when employment
is terminated before the normal retirement date, or when an
employee accepts voluntary redundancy in exchange for these
benefits. The group recognises termination benefits when it is
demonstrably committed to the affected employees leaving the
group.
(xv) Post retirement benefits
The group operates a funded defined benefit pension plan, which
is administered by an independent trustee, for the majority of its
employees.
The group’s obligation in respect of defined benefit pension
plans is calculated separately for each scheme by estimating the
amount of future benefit that employees have earned in return for
their service to date. That benefit is discounted to determine its
present value, and the fair value of any plan assets is deducted to
arrive at the net pension obligation or asset. The discount rate used
is the yield at the balance sheet date on AA credit rated bonds that
have maturity dates approximating the terms of the group’s
obligations. The calculation is performed by a qualified actuary
using the projected unit credit method. The net obligation or asset
recognised in the balance sheet is the present value of the defined
benefit obligation less the fair value of the plan assets.
The income statement charge is allocated between an operating
charge and a net finance charge. The operating charge reflects the
service cost which is spread systematically over the working lives
of the employees. The net finance charge reflects the unwinding
of the discount applied to the liabilities of the plan, offset by the
expected return on the assets of the plan, based on conditions
prevailing at the start of the year.
Actuarial gains and losses are recognised in full in the period in
which they occur and are presented in the statement of recognised
income and expense.
Actuarial valuations of the main defined benefit plan are carried
out by an independent actuary as determined by the trustees at
intervals of not more than three years, to determine the rates of
contribution payable. The pension cost is determined on the advice
of the group’s actuary, having regard to the results of these trustee
valuations. In any intervening years, the actuaries review the
continuing appropriateness of the contribution rates.
The group also operates defined contribution pension schemes and
the income statement is charged with the contributions payable.
(xvi) Share based payments
The group has a number of employee share schemes, share option
and award plans under which it makes equity settled share based
payments to employees. The fair value of options and awards
granted is recognised as an expense after taking into account the
group’s best estimate of the number of options and awards
expected to vest allowing for non market and service conditions.
Fair value is measured at the date of grant and is spread over the
vesting period of the award. The fair value of options and awards
granted is measured using either the Binomial or Monte Carlo
model, whichever is most appropriate to the award.
(xvii) Taxation
Current income tax is calculated on the basis of the tax laws
enacted or substantively enacted at the balance sheet date in the
countries where the company’s subsidiaries and associates operate
and generate taxable income. The group periodically evaluates
positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation, and the group
establishes provisions where appropriate on the basis of the
amounts expected to be paid to tax authorities.
Deferred tax is recognised, using the liability method, in respect
of temporary differences between the carrying amount of the
group’s assets and liabilities and their tax base, except to the extent
that the deferred tax asset or liability arises from the initial
recognition of goodwill or from the initial recognition of an asset or
liability in a transaction which is not a business combination and
affects neither accounting profit nor taxable profit.
Deferred tax liabilities are, where permitted under IAS 12
‘Income Taxes’, offset against deferred tax assets within the same
taxable entity or qualifying local tax group. Any remaining deferred
tax asset is recognised only when, on the basis of all available
evidence, it can be regarded as probable that there will be suitable
taxable profits, within the same jurisdiction, in the foreseeable
future against which the deductible temporary difference can be
utilised.
Deferred tax is determined using tax rates that are expected to
apply in the periods in which the asset is realised or liability settled,
based on tax rates and laws that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is provided on temporary differences arising on
investments in subsidiaries, associates and joint ventures, except
where the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will not
reverse in the foreseeable future.
Current and deferred tax are recognised in the income statement,
except when the tax relates to items charged or credited directly in
equity, in which case the tax is also recognised in equity.
(xviii) Advertising and marketing
The costs associated with the group’s advertising and marketing
activities are expensed within other operating costs as incurred.
(xix) Dividends
Final dividends are recognised as a liability in the year in which
they are declared and approved by the company’s shareholders
in general meeting. Interim dividends are recognised when they
are paid.
FINANCIAL STATEMENTS