EasyJet 2011 Annual Report Download - page 76

Notes to the accounts
Continued
1 Accounting policies continued
When a hedged future transaction is no longer expected to occur, any related gains and losses previously
recognised in shareholders’ equity are immediately recognised in the income statement.
Financial guarantees
If a claim on a financial guarantee given to a third party becomes probable, the obligation is recognised at fair
value. For subsequent measurement, the carrying amount is the higher of initial measurement and best estimate
of the expenditure required to settle the obligation on the statement of financial position date.
Tax
Tax expense in the income statement consists of current and deferred tax. The charge for current tax is based
on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax
rates that are applicable to the taxable income. Tax is recognised in the income statement except when it
relates to items credited or charged directly to other comprehensive income, in which case it is recognised in
other comprehensive income.
Deferred tax is provided in full on temporary differences relating to the carrying amount of assets and liabilities,
where it is probable that the recovery or settlement will result in an obligation to pay more, or a right to pay less,
tax in the future, with the following exceptions:
–where the temporary difference arises from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither taxable income nor accounting
profit
–deferred tax arising on investments in subsidiaries is not recognised where easyJet is able to control the
reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in
which recovery of assets and settlement of liabilities are expected to take place, based on tax rates or laws
enacted or substantively enacted at the balance sheet date.
Deferred tax assets represent amounts recoverable in future periods in respect of deductible temporary
differences, losses and tax credits carried forward. Deferred tax assets are recognised to the extent that it is
probable that there will be suitable taxable profits from which they can be deducted.
Deferred tax liabilities represent the amount of income taxes payable in future periods in respect of taxable
temporary differences.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and it is the intention to settle these on a net basis.
Aircraft maintenance provisions
The accounting for the cost of providing major airframe and certain engine maintenance checks for owned and
finance leased aircraft is described in the accounting policy for property, plant and equipment.
easyJet has contractual obligations to maintain aircraft held under operating leases. Provisions are created over
the term of the lease based on the estimated future costs of major airframe checks, engine shop visits and
end of lease liabilities. These costs are discounted to present value where the amount of the discount is
considered material.
A number of leases also require easyJet to pay supplemental rent to the lessor. Payments may be either a fixed
monthly sum up to a cap or are based on usage. The purpose of these payments is to provide the lessor with
collateral should an aircraft be returned in a condition that does not meet the requirements of the lease.
Supplemental rent is either refunded when qualifying maintenance is performed, or is offset against end of lease
liabilities. Where the amount of supplemental rent paid exceeds the estimated amount recoverable from the
lessor, provision is made for the non-recoverable amount.
Employee benefits
easyJet contributes to defined contribution pension schemes for the benefit of employees. easyJet has no
further payment obligations once the contributions have been paid. The assets of the schemes are held
separately from those of easyJet in independently administered funds. easyJet’s contributions are charged to
the income statement in the year in which they are incurred.
The expected cost of compensated holidays is recognised at the time that the related employees’ services are
provided.
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easyJet plc
Annual report
and accounts 2011