BT 2009 Annual Report Download - page 85

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
83BT GROUP PLC ANNUAL REPORT & FORM 20-F
FINANCIAL STATEMENTS
(xx) Provisions
Provisions are recognised when the group has a present legal or
constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation and
the amount can be reliably estimated. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and
the risks specific to the liability. Financial liabilities within provisions
are initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method. Onerous lease
provisions have been measured at the lower of the cost to fulfil the
contract or the cost to exit it.
(xxi) Financial instruments
Recognition and derecognition of financial assets and
financial liabilities
Financial assets and financial liabilities are recognised when the
group becomes party to the contractual provisions of the
instrument. Financial assets are derecognised when the group no
longer has rights to cash flows, the risks and rewards of ownership or
control of the asset. Financial liabilities are derecognised when the
obligation under the liability is discharged, cancelled or expires. In
particular, for all regular way purchases and sales of financial assets,
the group recognises the financial assets on the settlement date,
which is the date on which the asset is delivered to or by the group.
Financial assets
Financial assets at fair value through income statement
A financial asset is classified in this category if acquired principally
for the purpose of selling in the short term (held for trading) or if so
designated by management. Financial assets held in this category
are initially recognised and subsequently measured at fair value,
with changes in value recognised in the income statement in the
line which most appropriately reflects the nature of the item or
transaction. The direct transaction costs are recognised immediately
in the income statement.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market
other than:
those that the group intends to sell immediately or in the short
term, which are classified as held for trading;
those for which the group may not recover substantially all of its
initial investment, other than because of credit deterioration,
which are classified as available-for-sale.
Loans and receivables are initially recognised at fair value plus
transaction costs and subsequently carried at amortised cost using
the effective interest method, with changes in carrying value
recognised in the income statement in the line which most
appropriately reflects the nature of the item or transaction.
Available-for-sale financial assets
Non-derivative financial assets classified as available-for-sale are
either specifically designated in this category or not classified in
any of the other categories. Available-for-sale financial assets are
initially recognised at fair value plus direct transaction costs and
then remeasured at subsequent reporting dates to fair value, with
unrealised gains and losses (except for changes in exchange rates
for monetary items, interest, dividends and impairment losses,
which are recognised in the income statement) recognised in equity
until the financial asset is derecognised, at which time the
cumulative gain or loss previously recognised in equity is taken to
the income statement, in the line that most appropriately reflects
the nature of the item or transaction.
Trade and other receivables
Financial assets within trade and other receivables are initially
recognised at fair value, which is usually the original invoiced amount,
and are subsequently carried at amortised cost using the effective
interest method less provisions made for doubtful receivables.
Provisions are made specifically where there is evidence of a risk
of non-payment, taking into account ageing, previous losses
experienced and general economic conditions.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and current
balances with banks and similar institutions, which are readily
convertible to cash and which are subject to insignificant risk of
changes in value and have an original maturity of three months or
less.
For the purpose of the consolidated cash flow statement, cash
and cash equivalents are as defined above net of outstanding bank
overdrafts. Bank overdrafts are included within loans and other
borrowings, in current liabilities on the balance sheet.
Impairment of financial assets
The group assesses at each balance sheet date whether a financial
asset or group of financial assets are impaired.
Where there is objective evidence that an impairment loss has
arisen on assets carried at amortised cost, the carrying amount is
reduced with the loss being recognised in the income statement.
The impairment loss is measured as the difference between that
asset’s carrying amount and the present value of estimated future
cash flows discounted at the financial asset’s original effective
interest rate. The impairment loss is only reversed if it can be
related objectively to an event after the impairment was recognised
and is reversed to the extent that the carrying value of the asset
does not exceed its amortised cost at the date of reversal.
If an available-for-sale asset is impaired, an amount comprising
the difference between its cost (net of any principal payment and
amortisation) and its fair value is transferred from equity to the
income statement. Reversals of impairment losses on debt
instruments are taken through the income statement if the increase
in fair value of the instrument can be objectively related to an event
occurring after the impairment loss was recognised in the income
statement. Reversals in respect of equity instruments classified as
available-for-sale are recognised directly in equity.
If there is objective evidence that an impairment loss has been
incurred on an unquoted equity instrument that is not carried at
fair value because its fair value cannot be objectively measured, or
on a derivative asset that is linked to and must be settled by
delivery of such an unquoted equity instrument, the amount of loss
is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows discounted at
the current market rate of return for a similar financial asset.
Financial liabilities
Trade and other payables
Financial liabilities within trade and other payables are initially
recognised at fair value, which is usually the original invoiced
amount, and subsequently carried at amortised cost using the
effective interest method.
Loans and other borrowings
Loans and other borrowings are initially recognised at fair value
plus directly attributable transaction costs. Where loans and other
borrowings contain a separable embedded derivative, the fair