BT 2015 Annual Report Download - page 155

153
Overview
The Strategic Report
Purpose and strategy Delivering our strategy Group performance Governance Financial statements
Additional information
Basis of consolidation
he roup financial stateents consolidate the financial stateents of
 roup plc the copan and its subsidiaries and the incorporate
its share of the results of associates and joint ventures using the equity
method of accounting.
A subsidiary is an entity that is controlled by another entity, known
as the parent or investor. An investor controls an investee when
the investor is exposed, or has rights, to variable returns from its
involveent with the investee and has the abilit to aect those returns
through its power over the investee.
Non-controlling interests in the net assets of consolidated subsidiaries,
which consist of the amounts of those interests at the date of the
original business combination and non-controlling share of changes in
equity since the date of the combination, are not material to the group’s
financial stateents.
The results of subsidiaries acquired or disposed of during the year
are consolidated from and up to the date of change of control.
Where necessary, accounting policies of subsidiaries have been
aligned with the policies adopted by the group. All intra-group
transactions including any gains or losses, balances, income or
expenses are eliminated in full on consolidation.
hen the roup loses control of a subsidiar the profit or loss on
disposal is calculated as the dierence between i the areate of
the fair value of the consideration received and the fair value of any
retained interest and ii the previous carrin aount of the assets
includin oodwill and liabilities of the subsidiar and an
non-controllin interests. he profit or loss on disposal is reconised
as a specific ite.
Business combinations
On acquisition of a subsidiary, purchase consideration is measured at fair
value, which is the aggregate of the fair values of the assets transferred,
liabilities incurred or assumed and the equity instruments issued in
exchange for control of the acquiree. Acquisition-related costs are
epensed as incurred. he acuirees identifiable assets and liabilities
are recognised at their fair value at the acquisition date.
Goodwill arising on acquisition is recognised as an asset and measured at
cost, representing the excess of the aggregate of the consideration, the
amount of any non-controlling interests in the acquiree, and the
fair value of the acquirer’s previously held equity interest in the acquiree
if an over the net of the fair values of the identifiable assets and
liabilities at the date of acquisition.
pairent of non-financial assets
ntanible assets with finite useful lives and propert plant and
equipment are tested for impairment if events or changes in
circustances assessed at each reportin date indicate that the
carrying amount may not be recoverable. When an impairment test
is performed, the recoverable amount is assessed by reference to the
hiher of the net present value of the epected future cash ows
value in use of the relevant cash eneratin unit and the fair value
less cost to sell.
Goodwill is reviewed for impairment at least annually. Impairment
losses are reconised in the incoe stateent as a specific ite. f a
cash eneratin unit is ipaired ipairent losses are allocated firstl
against goodwill, and secondly on a pro rata basis against intangible
and other assets.
Government grants
Government grants are recognised when there is reasonable assurance
that the conditions associated with the grants have been complied with
and the grants will be received.
Grants for the purchase or production of property, plant and equipment
are deducted from the cost of the related assets and reduce future
depreciation expense accordingly. Grants for the reimbursement of
operating expenditure are deducted from the related category of costs
in the income statement. Government grants received relating to future
expenditure are recognised as payments received in advance within
Other payables.
Once a government grant is recognised, any related contingent liability
or continent asset is treated in accordance with  rovisions
Contingent Liabilities and Contingent Assets’.
Foreign currencies
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the date of the transaction.
Foreign exchange gains and losses resulting from the settlement of
transactions and the translation of monetary assets and liabilities
denominated in foreign currencies at period end exchange rates are
recognised in the income statement line which most appropriately
reects the nature of the ite or transaction.
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 echane for the ear unless this averae is not a reasonable
approiation of the cuulative eects of the rates prevailin on the
transaction dates, in which case income and expenses are translated at
the dates of the transactions. orein echane dierences arisin on
retranslation are recognised directly in a separate component of equity,
the translation reserve.
In the event of the disposal of an undertaking with assets and
liabilities denominated in a foreign currency, the cumulative translation
dierence associated with the undertain in the translation reserve
is charged or credited to the gain or loss on disposal recognised in the
income statement.
Research and development
Research expenditure is recognised in the income statement in the
period in which it is incurred. Development expenditure, including
the cost of internally developed software, is recognised in the income
statement in the period in which it is incurred unless it is probable that
econoic benefits will ow to the roup fro the asset bein developed
the cost of the asset can be reliably measured and technical feasibility
can be demonstrated, in which case it is capitalised as an intangible
asset on the balance sheet. Capitalisation ceases when the asset being
developed is ready for use. Research and development costs include
direct and indirect labour, materials and directly attributable overheads.
Leases
The determination of whether an arrangement is, or contains, a lease is
based on the substance of the arrangement and requires an assessment
of whether the fulfilent of the arraneent is dependent on the use of
a specific asset or assets and whether the arraneent conves the riht
to use the asset.
Leases of property, plant and equipment where the group holds
substantiall all the riss and rewards of ownership are classified
as finance leases. inance lease assets are capitalised at the
commencement of the lease term at the lower of the present value of
the minimum lease payments or the fair value of the leased asset. The
obliations relatin to finance leases net of finance chares in respect
of future periods, are recognised as liabilities. Leases are subsequently
easured at aortised cost usin the eective interest ethod.
eases where a sinificant portion of the riss and rewards are held b
the lessor are classified as operatin leases. entals are chared to the
income statement on a straight line basis over the period of the lease.
Own shares
Own shares represent the shares of the parent company BT Group plc
that are held in treasury or by employee share ownership trusts. Own
shares are recorded at cost and deducted from equity. When shares
vest unconditionally or are cancelled they are transferred from the own
shares reserve to retained earnings at their weighted average cost.
Share-based payments
The group operates a number of equity settled share-based payment
arrangements, under which the group receives services from employees
in consideration for euit instruents share options and shares of the
group. Equity settled share-based payments are measured at fair value
at the date of rant ecludin the eect of non aret-based vestin
conditions but including any market-based performance criteria and
the ipact of non-vestin conditions for eaple the reuireent
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