BT 2016 Annual Report Download - page 172

178 BT Group plc
Annual Report 2016
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
involvement with the investee and has the ability to affect 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 statements.
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.
When the group loses control of a subsidiary, the profit or loss on
disposal is calculated as the difference between (i) the aggregate of
the fair value of the consideration received and the fair value of any
retained interest and (ii) the previous carrying amount of the assets
(including goodwill), and liabilities of the subsidiary and any non-
controlling interests. The profit or loss on disposal is recognised as
a specific item.
Impairment of non-financial assets
Intangible assets with finite useful lives and property, plant and
equipment are tested for impairment if events or changes in
circumstances (assessed at each reporting 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 higher of the net present value of the expected future cash
flows (value in use) of the relevant cash generating unit and the fair
value less cost to sell.
Goodwill is reviewed for impairment at least annually. Impairment
losses are recognised in the income statement, as a specific item. If
a cash generating unit is impaired, impairment losses are allocated
firstly 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 the BDUK programme and other rural
superfast broadband contracts are accounted for as described
under ‘Critical accounting estimates and key judgements’.
Once a government grant is recognised, any related contingent
liability or contingent asset is treated in accordance with IAS37
‘Provisions, 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 reflects the nature of the item 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 exchange for the year (unless this average is not a reasonable
approximation of the cumulative effects of the rates prevailing
on the transaction dates, in which case income and expenses are
translated at the dates of the transactions). Foreign exchange
differences arising 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 difference associated with the undertaking 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 economic benefits will flow to the group from
the asset being 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 fulfilment of the arrangement is
dependent on the use of a specific asset or assets and whether the
arrangement conveys the right to use the asset.
Leases of property, plant and equipment where the group holds
substantially all the risks and rewards of ownership are classified
as finance leases. Finance 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 obligations relating to finance leases, net of finance
charges in respect of future periods, are recognised as liabilities.
Leases are subsequently measured at amortised cost using the
effective interest method.
Leases where a significant portion of the risks and rewards are held
by the lessor are classified as operating leases. Rentals are charged
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 equity instruments (share
options and shares) of the group. Equity settled share-based
payments are measured at fair value at the date of grant excluding
the effect of non market-based vesting conditions but including
any market-based performance criteria and the impact of non-
vesting conditions (for example, the requirement for employees to
save). The fair value determined at the grant date is recognised as
3. Signicant accounting policies continued