Peachtree 2013 Annual Report Download - page 103

Group accounting policies continued
The Sage Group plc | Annual Report & Accounts 2013 101
Financial statements
The tion of the Group’s total tax charge involves a degree
of estimation and judgement in respect of certain items whose tax
treatment cannot be finally determined until a resolution has been
reached by the relevant tax authority. Management makes estimates
of the likely outcome of decisions by tax authorities on transactions and
events whose treatment for tax purposes is uncertain.
Financial instruments
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.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less
provision for impairment.
A provision for impairment of trade receivables is established when
there is objective evidence that the Group will not be able to collect
all amounts due according to the original terms of the receivables.
Cash and cash equivalents
For the purpose of preparation of the Consolidated statement of cash
flows and the Consolidated balance sheet, cash and cash equivalents
include cash at bank and in hand and short-term deposits with an
original maturity period of three months or less. Bank overdrafts that
are an integral part of a subsidiary’s cash management are included
in cash and cash equivalents where they have a legal right of set-off
and there is an intention to settle net, against positive cash balances,
otherwise bank overdrafts are classified as borrowings.
Trade payables
Trade payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
Borrowings
Interest-bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income
statement over the period of borrowing on an effective interest basis.
Hedge accounting
All derivatives are initially recognised at fair value, and are subsequently
remeasured at fair value. The Group does not hold or issue derivative
financial instruments for trading purposes.
Derivatives designated as hedging instruments are accounted for in line
with the nature of the hedging arrangement. 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.
The Group 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 recycled to 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 is accounted for
as a financial liability. The amount that may become payable under
the option on exercise is initially recognised at present value with
a corresponding charge directly to equity. At the end of each period,
the valuation of the liability is reassessed with any changes recognised
in the income statement.
Foreign currencies
The consolidated financial statements are presented in sterling, which
is the functional currency of the parent company and the presentation
currency for the consolidated financial statements.
Foreign currency transactions are recorded at the rates of exchange
prevailing on the dates of the transactions. Foreign currency monetary
items are translated 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.
The assets and liabilities of the Group’s subsidiaries outside of the
UK are translated into sterling using period end exchange rates.
Income and expense items are translated at the average exchange
rates for the period. Where differences arise between these rates,
they are recognised in other comprehensive income and the
translation reserve.
When a foreign operation is partially disposed of or sold, exchange
differences that were recorded in other comprehensive income are
recycled in the income statement as part of the gain or loss on sale,
with the exception of exchange differences recorded in equity prior
to the transition to IFRS on 1 October 2004, in accordance with IFRS 1,
“First-time Adoption of International Financial Reporting Standards”.
Leases
Assets held under finance leases are initially recognised as assets of the
Group at their fair value or, if lower, at the present value of the minimum
lease payments, each determined at the inception of the lease. The
corresponding liability to the lessor is included in the balance sheet as
a finance lease obligation. Lease payments are apportioned between
101The Sage Group plc | Annual Report & Accounts 2013
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