Carphone Warehouse 2011 Annual Report Download - page 55

Carphone Warehouse Group plc Annual Report 2011 51
FINANCIAL STATEMENTSFINANCIAL STATEMENTS
• commission receivable on sales, being commission which
is contractually committed, and for which there are no
ongoing performance criteria, is recognised when the sales
to which the commission relates are made, net of any
provision for promotional offers and network operator
performance penalties. Commission includes a share of
customer airtime spend, to the extent that it can be reliably
measured and there are no ongoing service obligations.
Where the time value of money has a material impact,
an appropriate discount is applied such that revenue is
recognised at an amount equal to the present value of the
future consideration received;
• other ongoing revenue is recognised as it is earned over the
lives of the relevant customers;
• volume bonuses receivable from network operators are
recognised when the conditions on which they are earned
have been met;
• volume bonuses received from suppliers of products are
recognised as an offset to product cost when the conditions
on which they are earned have been met, and are recognised
within cost of sales when the products to which the volume
bonuses relate have been sold;
• insurance premiums are typically paid monthly or quarterly
in advance. Initial administration fees, which are specified
in the contract, are recognised at the point of sale;
insurance premium income is recognised over the lives
of the relevant policies;
• revenue from the sale of prepaid credits is deferred until
the customer uses the airtime or the credit expires;
• revenue generated from the provision of fixed and mobile
network services is recognised as it is earned over the lives
of the relevant customers; and
• all other revenue is recognised when the relevant goods
or services are provided.
e) Share-based payments
Equity settled share-based payments are measured at fair value
at the date of grant, and expensed over the vesting period, based
on an estimate of the number of shares that will eventually vest.
Fair value is measured by use of a Binomial model for share-
based payments with internal performance criteria (such as EPS
targets) and a Monte Carlo model for those with external
performance criteria (such as TSR targets).
For schemes with internal performance criteria, the number
of options expected to vest is recalculated at each balance sheet
date, based on expectations of performance against target and
of leavers prior to vesting. The movement in cumulative expense
since the previous balance sheet date is recognised in the income
statement, with a corresponding entry in reserves.
In accordance with UITF 38 ‘Accounting for ESOP Trusts’,
shares in the Company held by the Group’s ESOT are shown as
a reduction in shareholders’ funds. Other assets and liabilities
held by the Group’s ESOT are consolidated with the assets of
the Group.
c) Foreign currency translation and transactions
Material transactions in foreign currencies are hedged using
forward purchases or sales of the relevant currencies and are
recognised in the financial statements at the exchange rates
thus obtained. Unhedged transactions are recorded at the
exchange rate on the date of the transaction. Material monetary
assets and liabilities denominated in foreign currencies are
hedged, mainly using forward foreign exchange contracts to
create matching liabilities and assets, and are retranslated at
each balance sheet date. Hedge accounting as defined by IAS 39
‘Financial Instruments: Recognition and Measurement’ has been
applied by marking to market the relevant financial instruments
at the balance sheet date and recognising the gain or loss in
reserves in respect of cash flow hedges, and through the income
statement in respect of fair value hedges.
Until May 2010 financial instruments were used for the purposes
of net investment hedging. Hedges of net investments in foreign
operations are accounted for similarly to cash flow hedges in
that the gain or loss on the effective portion of the hedges is
recognised in equity, while gains or losses on any ineffective
portion is recognised in the income statement.
The results of overseas operations are translated at the average
foreign exchange rates for the year, and their balance sheets
are translated at the rates prevailing at the balance sheet date.
Exchange differences arising on the translation of net assets,
goodwill and results of overseas operations are recognised in
the translation reserve. All other exchange differences are
included in the income statement.
The principal exchange rates against UK Sterling used in these
financial statements are as follows:
Average Closing
2011 2010 2011 2010
Euro 1.17 1.13 1.13 1.12
United States Dollar 1.56 1.60 1.60 1.52
If a foreign operation is sold, the gain or loss on disposal
recognised in the income statement is determined after taking
into account the cumulative currency translation differences
that are attributable to the operation.
d) Revenue
Revenue comprises rental income on investment properties
and is stated net of VAT and other sales related taxes. All such
revenue is recognised as the services are provided.
The following accounting policies are applied to revenue arising
in the Group’s joint ventures:
• revenue arising on the sale of mobile and other products
and services is recognised when the relevant products or
services are provided;