BT 2010 Annual Report Download - page 93

FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
91BT GROUP PLC ANNUAL REPORT & FORM 20-F
ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS REVIEW OF THE YEAR OVERVIEW
accelerated vesting and all remaining future charges are
immediately recognised. As the requirement to save under an
employee share save arrangement is a non-vesting condition,
employee cancellations must be treated as an accelerated vesting.
(xviii) 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, associates and joint ventures
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, 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.
(xix) Advertising and marketing
The costs associated with the group’s advertising and marketing
activities are recognised within other operating costs as incurred.
(xx) Dividends
Final dividends are recognised as a liability in the year in which
they are declared and approved by the company’s shareholders
in the annual general meeting. Interim dividends are recognised
when they are paid.
(xxi) 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.
(xxii) 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 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 re-measured 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.