Peachtree 2012 Annual Report Download - page 86

Group accounting policies continued
q Income tax continued
goodwill or from the initial recognition (other than in a business combination) of
other assets and liabilities in a transaction that affects neither the taxable profit
nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising
on investments in subsidiaries, except where the Group 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.
The carrying amount of deferred tax assets is reviewed at the end of each
reporting period and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset
to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised based on tax rates that
have been enacted or substantively enacted at the end of the reporting period.
Deferred tax and current tax are charged or credited to profit or loss, except
when it relates to items charged or credited directly to equity, in which case
the deferred tax is also dealt with in equity.
Tax assets and liabilities are offset when there is a legally enforceable right to
set off current tax assets against current tax liabilities and when they relate
to income taxes levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.
In recognising income tax assets and liabilities, management makes estimates
of the likely outcome of decisions by tax authorities on transactions and
events whose treatment for tax purposes is uncertain. Where the final
outcome of such matters is different, or expected to be different, from
previous assessments made by management, a change to the carrying value
of income tax assets and liabilities will be recorded in the period in which
such a determination is made. The carrying values of income tax assets and
liabilities are disclosed separately in the Consolidated balance sheet.
r Financial liabilities
Financial assets and liabilities are recognised in the Group’s balance sheet
when the Group becomes a party to the contractual provision of the instrument.
Hedge accounting
The Group uses derivative financial instruments to manage exposures where
appropriate. All derivatives are initially recognised at fair value, and are
subsequently remeasured to fair value at the end of the reporting period.
Derivatives designated as hedging instruments are accounted for in line with
the nature of the hedging arrangement. Derivatives are intended to be highly
effective in mitigating the underlying risk, and hedge accounting is adopted
where the required hedge documentation is in place and the relevant test
criteria are met. Changes in fair value of any derivative instruments that
do not qualify for hedge accounting are recognised immediately in the
income statement.
Derivative instruments are used to manage the Group’s exposure to changes
in cash flows arising from movements in underlying exposures. The derivatives
are designated as cash flow hedges, and hedge accounting is used where
it has been shown that the hedge relationship is highly effective. Gains and
losses on derivative financial instruments in a cash flow hedge relationship are
recognised in other comprehensive income and subsequently recognised in
the income statement in the same period that the hedged item affects income.
When a hedging instrument is closed out, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss existing in equity
at that time remains in equity and is recognised when the forecast transaction
is ultimately recognised in the income statement. When a forecast transaction
is no longer expected to occur, the cumulative gain or loss that was reported
in equity is immediately transferred to the income statement.
In accordance with its treasury policy, the Group does not hold or issue
derivative financial instruments for trading purposes.
The Group has certain investments in foreign operations, whose net assets are
exposed to foreign currency translation risk. Currency exposure arising from
the net assets of the Group’s foreign operations is managed primarily through
borrowings denominated in the relevant foreign currencies.
The Group also operates net investment hedges, using foreign currency
borrowings. The portion of the gain or loss on an instrument used to hedge
a net investment in a foreign operation that is determined to be an effective
hedge is recognised in other comprehensive income. The ineffective portion
is recognised immediately in profit or loss. On disposal of the net investment,
the foreign exchange gains and losses on the hedging instrument
are recognised in the income statement from equity.
Shares repurchased for cancellation
The Group also makes use of contingent contracts for the purchase of its own
shares. These derivative contracts are accounted for as equity transactions
and the contracts are not stated at their market values. The present value
of the obligation to purchase the shares is recognised in full at the inception
of the contract, even when that obligation is conditional. Any subsequent
reduction in the total obligation arising from the early termination of a contract
is credited back to equity at the time of termination.
Put and call arrangement granted to non-controlling interest
Where put and call agreements are in place in respect of shares held by
a non-controlling interest, the put element of the liability is measured in
accordance with the requirements of IAS 32, “Financial Instruments:
Presentation”. At the end of each period, the valuation of the liability is
reassessed with any changes recognised in the income statement.
s Foreign currency translation
The individual financial statements of each Group entity are presented in the
currency of the primary economic environment in which the entity operates
(its “functional currency”). For the purpose of the consolidated financial
statements, the results and financial position of each entity are expressed
in Sterling, which is the functional currency of the parent Company and the
presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in
currencies other than the entity’s functional currency (“foreign currencies”) are
recorded at the rates of exchange prevailing on the dates of the transactions.
At the end of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at the end of the reporting
period. Non-monetary items carried at fair value that are denominated in
foreign currencies are retranslated at the rates prevailing on the date when
the fair value was determined. Non-monetary items that are measured in
terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlements of monetary items and on
the retranslation of monetary items are included in profit or loss for the period.
Exchange differences arising on the retranslation of non-monetary items
carried at fair value are included in profit or loss for the period except for
differences arising on the retranslation of non-monetary items in respect
of which gains and losses are recognised outside profit or loss. For such
non-monetary items, any exchange component of that gain or loss is also
recognised outside profit or loss.
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group’s foreign operations (including comparatives)
are expressed in Sterling using exchange rates prevailing at the end of the
reporting period. Income and expense items (including comparatives) are
translated at the average exchange rates for the period, unless exchange rates
fluctuated significantly during that period, in which case the exchange rates
at the dates of the transactions are used. Exchange differences arising, if any,
are recognised in other comprehensive income and transferred to the Group’s
translation reserve.
Goodwill and fair value adjustments arising on the acquisition of a foreign
operation are treated as assets and liabilities of the foreign operation and
translated at the closing rate.
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