24th Jul 2008 07:01
Date: 24 July 2008
On behalf of: Travelzest plc ("Travelzest" or the "Company")
TRAVELZEST PLC
ADOPTION OF INTERNATIONAL REPORTING STANDARDS
Travelzest Plc has adopted International Financial Reporting Standards ("IFRS) in its financial statements for the year ended 31 October 2008 and reports its results for the period ending 30 April 2008 and subsequent reporting periods in accordance with the standards. The date of transition is 1st November 2006.
The purpose of this document is to outline the changes in accounting policy arising from the adoption of IFRS and selected options or exemptions taken advantage of. It also provides restated consolidated income statements for the periods ended 30 April 2007 and 31 October 2007 together with consolidated balance sheets as at those dates along with reconciliations between those previously provided UK GAAP and restated IFRS statements.
The changes resulting from the adoption of IFRS are accounting changes only and do not affect the underlying operations and cash flows of the Group.
BASIS OF PREPARATION
The financial information presented in this document is prepared in accordance with IFRS.
The Group has adopted Standards and Interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 November 2006.
Travelzest Plc financial statements were prepared in accordance with United Kingdom Generally Accepted Accounting Principles (UK GAAP) until 31 October 2007. In preparing Travelzest Plc interim financial statements for the period ended 30 April 2008 management has amended certain accounting, valuation and consolidation applied in UK GAAP in order to comply with recognition and measurement criteria of IFRS. The specific accounting policies applied are set out in Appendix II. It is possible that further standards or interpretations may be issued that may affect the financial statements year ending 31 October 2008. In this event, the financial results and their presentation may differ from that set out in this document.
IFRS 1 "First time Adoption of International Accounting Standards" provides guidance for entities applying IFRS in their annual financial statements for the first time. Its also provides a number of exemptions from the requirements of other standards when IFRS is adopted for the first time. The exemptions granted by IFRS 1 that have been adopted by the Group are set out below:
Business Combinations
The Group has elected not to restate the accounting for business combinations completed before the date of transition. Consequently, the amount of goodwill carried on the Group's IFRS balance sheet at the date of transition will be the same as that carried on the Group's UK GAAP's Balance Sheet at that date. Extensive review and documentation has been undertaken of those business combinations occurring after the date of transition and we have concluded no material adjustment is required.
Restatement of comparative information for IAS 32 and IAS 39
The Group has elected to adopt IAS 32 and IAS 39 "Financial Instruments: Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement" from 1 November 2006. Therefore the comparative financial information in respect of financial instruments set out in these financial statements is presented in accordance with UK GAAP.
Cumulative translation differences
The Group has elected that the cumulative translation differences that existed for all foreign operations under UK GAAP will be deemed to be zero at the date of transition to IFRS, 1 November 2006.
The financial information provided in this document does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The UK GAAP audited results in respect of the years ended 31 October 2007 and 31 October 2006 have been delivered to the Registrar of Companies without qualification.
SIGNIFICANT CHANGES IN ACCOUNTING POLICY
Goodwill Amortisation
IFRS 3 "Business Combinations" prohibits the amortisation of goodwill but requires annual tests of impairment. Goodwill charged under UK GAAP for the financial statements year ended 31 October 2007 was £1.9m with a corresponding increase in net assets as at that date. IFRS 3 also provides for a consideration of any separable intangible assets and for these to be valued and disclosed separate to good will.
Brochure and Promotional Costs
IAS 38 "Intangible Assets" requires that expenditure on advertising and promotion is written off as incurred. The Group's previous accounting policy, in accordance with UK GAAP, was to charge such expenses to the profit and loss account over the season to which they relate. The change in accounting policy will lead to a reduction in net assets as at 31 October 2007 of £0.5 million and a corresponding charge to the profit and loss account.
Computer Software
IAS 38 "Intangible Assets" requires that all computer software that is not an integral part of computer hardware be treated as an intangible asset. Consequently, there is a reclassification between other intangible assets and property, plant and equipment on the balance sheet and between depreciation and amortisation in the profit and loss account. There is no net effect on the profit the year ended 31 October 2007.
Derivative Financial Instruments
IAS 39 - Financial Instruments: Recognition and Measurement requires derivatives are measured at their fair value. When a derivative does not qualify for hedge accounting, changes in fair value are recognised immediately in the income statement. When a derivative qualifies for hedge accounting, changes in fair value that are determined to be an effective hedge are recognised in the hedging reserve. Any ineffective portion of the change in fair value is recognised immediately in the income statement.
If a hedged transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated cumulative gain or loss is removed from the hedging reserve and is included in the initial cost or carrying amount of the asset or liability. For all other cash flow hedges, the associated cumulative gain or loss is removed from the hedging reserve and recognised in the income statement in the same period or periods during which the hedged or forecast transaction affects profit or loss.
SUMMARY FINANCIAL IMPACTS
The financial impacts the accounting policy changes outlined above on net assets as at 31 October 2007 and the profit before taxation for year then ended are summarised below:
Net assets as at 31 October 2007
|
£'000s |
||||||
|
Net assets as reported under UK GAAP |
29,497 |
|||||
|
Goodwill amortisation |
1,883 |
|||||
|
Brochure and promotional costs |
(492) |
|||||
|
Derivative Financial Instruments |
250 |
|||||
|
Website development costs |
(30) |
|||||
|
Taxation |
(131) |
|||||
|
Total IFRS adjustments |
1,480 |
|||||
|
Net Assets under IFRS |
30,977 |
|||||
Profit before taxation for the year ended 31 October 2007
|
£'000s |
||||||
|
Profit before tax as reported under UK GAAP |
874 |
|||||
|
Goodwill amortisation |
1,883 |
|||||
|
Brochure and promotional costs |
(399) |
|||||
|
Website development costs |
(30) |
|||||
|
Total IFRS adjustments |
1,454 |
|||||
|
Profit before tax as reported under IFRS |
2,328 |
|||||
RESTATED FINANCIAL STATEMENTS
GROUP INCOME STATEMENTS
|
Six months ended 30 April |
Six months ended 30 April |
Year ended 31 October |
Year ended 31 October |
|
|
2007 |
2007 |
2007 |
2007 |
|
|
£'000s |
£'000s |
£'000s |
£'000s |
|
|
UK GAAP |
IFRS |
UK GAAP |
IFRS |
|
|
Continuing operations |
||||
|
Revenue* |
13,589 |
13,589 |
38,467 |
38,467 |
|
Cost of sales |
(4,392) |
(4,392) |
(17,903) |
(17,903) |
|
Gross profit |
9,197 |
9,197 |
20,564 |
20,564 |
|
Administrative expenses |
(8,458) |
(8,056) |
(19,113) |
(17,659) |
|
Operating profit |
739 |
1,141 |
1,451 |
2,905 |
|
Finance income |
111 |
111 |
382 |
382 |
|
Finance costs |
(445) |
(445) |
(959) |
(959) |
|
Profit on ordinary activities before taxation |
405 |
807 |
874 |
2,328 |
|
Income tax expense |
(346) |
(1,050) |
(1,000) |
(1,158) |
|
Profit for the financial year |
59 |
(243) |
(126) |
1,170 |
|
Earnings/(loss) per share |
||||
|
Basic |
0.25p |
(1.00)p |
(0.52)p |
4.83p |
|
Fully diluted |
0.20p |
- |
- |
3.82p |
|
Normalised |
3.10p |
(0.24)p |
8.10p |
6.70p |
GROUP BALANCE SHEETS
|
30 April |
31 October |
|
|
2007 £'000s |
2007 £'000s |
|
|
IFRS |
IFRS |
|
|
ASSETS |
||
|
Non-current assets |
||
|
Intangible assets - goodwill |
37,300 |
38,754 |
|
Intangible assets - other |
1,416 |
1,684 |
|
Property, plant & equipment |
733 |
1,021 |
|
39,449 |
41,459 |
|
|
Current assets |
||
|
Inventories |
7 |
2 |
|
Tax assets |
- |
27 |
|
Derivative financial instruments |
244 |
295 |
|
Trade and other receivables |
6,160 |
7,123 |
|
Cash and cash equivalents |
10,343 |
10,480 |
|
16,754 |
17,927 |
|
|
Total assets |
56,203 |
59,386 |
|
EQUITY AND LIABILITIES |
||
|
Equity attributable to equity holders of the parent |
||
|
Share capital |
313 |
350 |
|
Share premium |
11,632 |
14,233 |
|
Exchangeable shares |
10,365 |
10,365 |
|
Merger reserve |
2,320 |
2,320 |
|
Translation and hedge reserve |
539 |
598 |
|
Retained earnings |
39 |
3,111 |
|
Total equity |
25,208 |
30,977 |
|
Non-current liabilities |
||
|
Trade and other payables |
7,476 |
4,976 |
|
Borrowings |
10,701 |
9,860 |
|
Deferred tax liabilities |
241 |
- |
|
18,418 |
14,836 |
|
|
Current liabilities |
||
|
Trade and other payables |
4,715 |
8,832 |
|
Borrowings |
1,977 |
1,870 |
|
Derivative financial instruments |
50 |
45 |
|
Current tax liabilities |
977 |
1,230 |
|
Revenue received in advance |
4,858 |
1,596 |
|
12,577 |
13,573 |
|
|
Total liabilities |
30.995 |
28,409 |
|
Total equity and liabilities |
56,203 |
59,386 |
APPENDICES
APPENDIX I: RECONCILIATIONS
|
Group Balance Sheet as at 30 April 2007 |
||||||
|
UK GAAP (IFRS Format) |
Goodwill Amortisation |
Taxation |
Website Costs |
Computer Software |
Brochure & Promotional Costs |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Non-current assets |
||||||
|
Intangible assets |
36,560 |
741 |
832 |
630 |
||
|
Property, Plant |
2,195 |
(832) |
(630) |
|||
|
Trade and other receivables |
||||||
|
Current assets |
||||||
|
Inventories |
8 |
|||||
|
Tax assets |
||||||
|
Trade and other receivables |
6,545 |
(385) |
||||
|
Derivative financial instruments |
||||||
|
Cash and cash equivalents |
10,343 |
|||||
|
Total assets |
55,651 |
741 |
0 |
0 |
0 |
(385) |
|
Current liabilities |
||||||
|
Trade and other payables |
(4,715) |
|||||
|
Short term borrowings |
(1,977) |
|||||
|
Obligations under finance leases |
||||||
|
Derivative financial instruments |
||||||
|
Tax liabilities |
(299) |
(704) |
0 |
|||
|
Revenue received in advance |
(4,858) |
|||||
|
Net current assets |
43,801 |
741 |
(704) |
0 |
0 |
(385) |
|
Non-current liabilities |
||||||
|
Trade and other payables |
(7,476) |
|||||
|
Long term borrowings |
(10,701) |
|||||
|
Obligations under finance leases |
||||||
|
Tax liabilities |
||||||
|
Deferred tax liabilities |
(241) |
|||||
|
Long term provisions |
||||||
|
Total liabilities |
(30,268) |
0 |
(704) |
0 |
0 |
0 |
|
Net assets |
25,383 |
741 |
(704) |
0 |
0 |
(385) |
|
Equity |
||||||
|
Called up share capital |
313 |
|||||
|
Share premium account |
11,632 |
|||||
|
Exchangable shares |
10,365 |
|||||
|
Merger Reserve |
2,320 |
|||||
|
Hedge Reserve |
||||||
|
Equity Reserve |
||||||
|
Share based payments |
||||||
|
P&L Account |
753 |
741 |
(704) |
(385) |
||
|
Total equity |
25,383 |
741 |
(704) |
0 |
0 |
(385) |
|
Group Balance Sheet as at 30 April 2007 (continued) |
||||||
|
Web Costs to be Expensed |
Interest Rate Swap |
Forward Contracts |
TZ Net Investment Hedge |
Total IFRS Adjustment |
Restated under IFRS |
|
|
£'000 |
£'000 |
£'000 |
||||
|
Non-current assets |
||||||
|
Intangible assets |
(47) |
2,156 |
38,716 |
|||
|
Property, Plant |
(1,462) |
733 |
||||
|
Trade and other receivables |
0 |
0 |
||||
|
Current assets |
||||||
|
Inventories |
0 |
8 |
||||
|
Tax assets |
0 |
0 |
||||
|
Trade and other receivables |
(385) |
6,160 |
||||
|
Derivative financial instruments |
132 |
112 |
244 |
244 |
||
|
Cash and cash equivalents |
0 |
10,343 |
||||
|
Total assets |
(47) |
0 |
132 |
112 |
553 |
56,204 |
|
Current liabilities |
||||||
|
Trade and other payables |
0 |
(4,715) |
||||
|
Short term borrowings |
0 |
(1,977) |
||||
|
Obligations under finance leases |
0 |
0 |
||||
|
Derivative financial instruments |
(50) |
(50) |
(50) |
|||
|
Tax liabilities |
(704) |
(1,004) |
||||
|
Revenue received in advance |
0 |
(4,858) |
||||
|
Net current assets |
(47) |
(50) |
132 |
112 |
(202) |
43,600 |
|
Non-current liabilities |
||||||
|
Trade and other payables |
0 |
(7,476) |
||||
|
Long term borrowings |
0 |
(10,701) |
||||
|
Obligations under finance leases |
0 |
0 |
||||
|
Tax liabilities |
0 |
0 |
||||
|
Deferred tax liabilities |
0 |
(241) |
||||
|
Long term provisions |
0 |
0 |
||||
|
Total liabilities |
0 |
(704) |
(30,972) |
|||
|
Net assets |
(47) |
(50) |
132 |
112 |
(202) |
25,181 |
|
Equity |
0 |
|||||
|
Called up share capital |
0 |
313 |
||||
|
Share premium account |
0 |
11,632 |
||||
|
Exchangable shares |
0 |
10,365 |
||||
|
Merger Reserve |
0 |
2,320 |
||||
|
Hedge Reserve |
(50) |
132 |
112 |
194 |
194 |
|
|
Equity Reserve |
||||||
|
Share based payments |
||||||
|
P&L Account |
(47) |
(396) |
357 |
|||
|
Total equity |
(47) |
(50) |
132 |
112 |
(202) |
25,181 |
|
Group Income Statement for the period ended 30 April 2007 |
|||||||||||||
|
UK GAAP (IFRS Format) |
Goodwill Amortisation |
Brochure & Promotional Costs |
Web Costs to be Expensed |
Tax |
Total IFRS Adjustment |
Restated under IFRS |
|||||||
|
£'000 |
£'000 |
£'000 |
£'000 |
|
£'000 |
£'000 |
|||||||
|
|
|
TOTAL |
TOTAL |
|
|
|
|||||||
|
|
|
|
|
|
|
|
|||||||
|
Revenue (TTV) |
86,326 |
|
|
|
|
0 |
86,326 |
||||||
|
|
|
|
|
|
|
|
|||||||
|
Cost of Sales |
(77,129) |
|
|
|
|
|
|
|
|
|
0 |
|
(77,129) |
|
|
|
|
|
|
|
|
|||||||
|
Gross Profit |
9,197 |
0 |
|
|
|
0 |
9,197 |
||||||
|
|
|
|
|
|
|
|
|||||||
|
Operating Expenses |
(8,458) |
|
741 |
|
(292) |
|
(47) |
|
|
|
402 |
|
(8,056) |
|
|
|
|
|
|
|
|
|||||||
|
Profit from Operations |
739 |
|
|
|
|
|
1,141 |
||||||
|
|
|
|
|
|
|
|
|||||||
|
Finance Income |
111 |
|
|
|
|
0 |
111 |
||||||
|
|
|
|
|
|
|
|
|||||||
|
Finance Costs |
(445) |
|
|
|
|
|
|
|
|
|
0 |
|
(445) |
|
|
|
|
|
|
|
|
|||||||
|
Profit before tax |
405 |
|
|
|
|
|
807 |
||||||
|
|
|
|
|
|
|
|
|||||||
|
Tax |
(346) |
|
|
|
(704) |
(704) |
(1,050) |
||||||
|
|
|
|
|
|
|
|
|||||||
|
Profit for Period |
59 |
741 |
(292) |
(47) |
(704) |
402 |
(243) |
||||||
|
Attributable to: |
|||||||||||||
|
Equity holders of the parent |
59 |
(243) |
|||||||||||
|
Minority interests |
0 |
0 |
|||||||||||
|
59 |
(243) |
||||||||||||
|
Group Balance Sheet as at 31 October 2007 |
||||||
|
UK GAAP (IFRS Format) |
Goodwill Amortisation |
Taxation |
Website Costs |
Reclassification of Loan Notes |
Computer Software |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||
|
Non-current assets |
||||||
|
Intangible assets |
36,871 |
1,883 |
891 |
794 |
||
|
Property, Plant |
2,735 |
(891) |
(794) |
|||
|
Trade and other receivables |
||||||
|
Current assets |
||||||
|
Inventories |
2 |
|||||
|
Tax assets |
||||||
|
Trade and other receivables |
7,616 |
|||||
|
Derivative financial instruments |
||||||
|
Cash and cash equivalents |
10,480 |
|||||
|
Total assets |
57,704 |
1,883 |
0 |
0 |
0 |
|
|
Current liabilities |
||||||
|
Trade and other payables |
(9,952) |
1,120 |
||||
|
Short term borrowings |
(750) |
(1,120) |
||||
|
Obligations under finance leases |
||||||
|
Derivative financial instruments |
||||||
|
Tax liabilities |
(849) |
(382) |
||||
|
Revenue received in advance |
(1,596) |
|||||
|
Net current assets |
44,557 |
1,883 |
(382) |
0 |
0 |
|
|
Non-current liabilities |
||||||
|
Trade and other payables |
(4,976) |
|||||
|
Long term borrowings |
(9,860) |
|||||
|
Obligations under finance leases |
||||||
|
Tax liabilities |
||||||
|
Deferred tax liabilities |
(224) |
251 |
||||
|
Long term provisions |
||||||
|
Total liabilities |
(28,207) |
0 |
(131) |
0 |
0 |
|
|
Net assets |
29,497 |
1,883 |
(131) |
0 |
0 |
|
|
Equity |
||||||
|
Called up share capital |
350 |
|||||
|
Share premium account |
14,233 |
|||||
|
Exchangable shares |
10,365 |
|||||
|
Merger Reserve |
2,320 |
|||||
|
Hedge Reserve |
||||||
|
Equity Reserve |
||||||
|
Share based payments |
696 |
|||||
|
P&L Account |
1,533 |
1,883 |
(131) |
|||
|
Total equity |
29,497 |
1,883 |
(131) |
0 |
0 |
|
|
Group Balance Sheet as at 31 October 2007 (continued) |
|||||||
|
Brochure & Promotional Costs |
Web Costs to be Expensed |
Interest Rate Swap |
Forward Contracts |
TZ Net Investment Hedge |
Total IFRS Adjustment |
Restated under IFRS |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
||||
|
Non-current assets |
|||||||
|
Intangible assets |
3,567 |
40,438 |
|||||
|
Property, Plant |
(30) |
(1,714) |
1,021 |
||||
|
Trade and other receivables |
0 |
0 |
|||||
|
Current assets |
|||||||
|
Inventories |
0 |
2 |
|||||
|
Tax assets |
0 |
0 |
|||||
|
Trade and other receivables |
(492) |
(492) |
7,123 |
||||
|
Derivative financial instruments |
173 |
122 |
295 |
295 |
|||
|
Cash and cash equivalents |
0 |
10,480 |
|||||
|
Total assets |
(492) |
(30) |
0 |
173 |
122 |
1,656 |
59,359 |
|
Current liabilities |
|||||||
|
Trade and other payables |
1,120 |
(8,832) |
|||||
|
Short term borrowings |
(1,120) |
(1,870) |
|||||
|
Obligations under finance leases |
0 |
0 |
|||||
|
Derivative financial instruments |
(45) |
(45) |
(45) |
||||
|
Tax liabilities |
(382) |
(1,231) |
|||||
|
Revenue received in advance |
0 |
(1,596) |
|||||
|
Net current assets |
(492) |
(30) |
(45) |
173 |
122 |
1,229 |
45,786 |
|
Non-current liabilities |
|||||||
|
Trade and other payables |
0 |
(4,976) |
|||||
|
Long term borrowings |
0 |
(9,860) |
|||||
|
Obligations under finance leases |
0 |
0 |
|||||
|
Tax liabilities |
0 |
0 |
|||||
|
Deferred tax liabilities |
251 |
27 |
|||||
|
Long term provisions |
0 |
0 |
|||||
|
Total liabilities |
0 |
0 |
(131) |
(28,338) |
|||
|
Net assets |
(492) |
(30) |
(45) |
173 |
122 |
1,480 |
30,977 |
|
Equity |
0 |
||||||
|
Called up share capital |
0 |
350 |
|||||
|
Share premium account |
0 |
14,233 |
|||||
|
Exchangable shares |
0 |
10,365 |
|||||
|
Merger Reserve |
0 |
2,320 |
|||||
|
Hedge Reserve |
(45) |
173 |
122 |
250 |
250 |
||
|
Equity Reserve |
|||||||
|
Share based payments |
696 |
||||||
|
P&L Account |
(492) |
(30) |
1,229 |
2,763 |
|||
|
Total equity |
(492) |
(30) |
(45) |
173 |
122 |
1,480 |
30,977 |
APPENDIX II: SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
1. Basis of Consolidation
The Group's financial statements consolidate those of the Company and its subsidiary undertakings. The results of subsidiaries acquired or disposed of are consolidated for the periods from or to the date on which control passed. Acquisitions are accounted for under the purchase method.
Estimates
The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
Determining whether goodwill is impaired requires an estimate of value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate future cash flows from the cash-generating units and a suitable discount rate in order to calculate a fair value.
2. Goodwill
Goodwill arising on acquisition represents any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired. Goodwill is recognised as an asset, and is reviewed for impairment at least annually. Any impairment is recognised immediately in the Group's income statement and is not subsequently reversed.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.
3. Property, plant and equipment
Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment.
Where costs are incurred as part of the start-up or commissioning of an item of property, plant or equipment, and that item is available for use but incapable of operating in the manner intended by management without such a start-up or commissioning period, then such costs are included within the cost of the item. Costs that are not directly attributable to bringing an asset to the location and condition necessary for it to be capable of operating in the manner intended by management are charged to the income statement as incurred.
Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life.
|
Property improvements |
- 5 years |
|
Fixtures and fittings |
- 3 to 5 years |
|
Office equipment and computer equipment |
- 3 to 5 years |
|
Motor vehicles |
- 3 to 5 years |
4. Revenue recognition
Revenue represents the aggregate amount of gross revenue receivable from inclusive tours, travel agency commissions receivable and other services supplied to the customers in the ordinary course of business. Revenue and direct expenses relating to the inclusive tours arranged by the Group's leisure travel providers are taken to the income statement on holiday departure. Revenue relating to travel agency commission receivable on third party leisure travel products is recognised when earned, which is on receipt of the full payment from the customer. Other revenue and associated expenses are taken to the income statement as earned or incurred. Revenue and expenses exclude intra-group transactions.
5. Income statement presentation
Profit or loss from operations includes the results from operating activities of the Group, before its share of the results of any associates and joint ventures. It is stated before the results of investing activities such as disposal of subsidiaries or joint ventures and the disposals of items of property, plant and equipment.
Separately disclosed items are those that are unusual because of their size, nature or incidence which the Group's management consider should be disclosed separately to enable a full understanding of the Group's results.
6. Tax
Tax represents the sum of tax currently payable and deferred tax. Tax is recognised in the income statement unless it relates to an item recognised directly in equity, in which case the associated tax is also recognised directly in equity.
Tax currently payable is provided on taxable profits based on the tax rates and laws that have been enacted and or substantively enacted at the balance sheet date that result in an obligation to pay more tax, or a right to pay less tax, in the future, except as set out below. This is calculated on a non-discounted basis by reference to the average tax rates that are expected to apply in the relevant jurisdictions and for the periods in which the temporary differences are expected to reverse.
Deferred tax assets are assessed at each balance sheet date and are only recognised to the extent that their recovery against future taxable profits is probable. Deferred tax liabilities are recognised for the retained earnings of overseas subsidiaries, joint ventures and associates unless the Group is able to control the timing of the distribution of those earnings and it is probable that they will not be distributed in the foreseeable future.
7. Pensions
Pension costs charged against profits in respect of the Group's defined contribution schemes represent the amount of the contributions payable to the schemes in respect of the accounting period.
8. Foreign currency
Average exchange rates are used to translate the results of all subsidiaries, associates and joint ventures that have a functional currency other than sterling. The balance sheets of such entities are translated at period end exchange rates. The resulting exchange differences are dealt with through a separate component of equity.
Transactions in currencies other than the functional currency of an entity are translated at the exchange rate at the date of transaction. Foreign currency monetary assets and liabilities held at the period end are translated at the period end exchange rates. The resulting exchange gain or loss is dealt with in the income statement.
9. Derivative financial instruments
Derivatives are recognised at their fair value. When a derivative does not qualify for hedge accounting as a cash flow hedge, changes in fair value are recognised immediately in the income statement. When a derivative qualifies for hedge accounting as a cash flow hedge, changes in fair value that are determined to be an effective hedge are recognised directly in the hedging reserve. Any ineffective portion of the change in fair value is recognised immediately in the income statement.
If a hedged transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated cumulative gain or loss is removed from the hedging reserve and is included in the initial cost or carrying amount of the asset or liability. For all other cash flow hedges, the associated cumulative gain or loss is removed from the hedging reserve and recognised in the income statement in the same period or periods during which the hedged or forecast transaction affects profit or loss.
10. Share-based payments
The Group issues share-based instruments to certain employees as part of their total remuneration. The fair values of these instruments are calculated at the date of grant, using the Black-Scholes pricing model. These fair values are charged to the income statement on a straight-line basis over the expected vesting periods of the instruments, with a corresponding increase in equity reserves.
Related Shares:
TVZ.L