Annual Report for the year ended 31 December 2008

1. aCCoUntinG PoliCies (CONTINuED)
Segment reporting
Business segments are distinguishable components of the Group that
provide products or services that are subject to risks and reward that are
different to those of other business segments. Geographical segments
provide products or services within a particular economic environment that
is subject to risks and rewards that are different to those of components
operating in other economic environments. Business segments are the
primary reporting segments. Group costs are allocated to segments on a
reasonable and consistent basis. The analysis by geographical segment
is based on the location of the customer.
Foreign currency translation
(a) Functional and presentation currency
items included in the Financial statements of each of the Group’s entities
are measured using the currency of the primary economic environment
in which the entity operates (the ‘functional currency’). The consolidated
Financial statements of the Group are presented in sterling, which is the
company’s functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from
the translation at year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement.
Translation differences on non-monetary items, such as equities held at fair
value through profit or loss, are reported as part of their fair value gain or
loss. Translation differences on non-monetary items measured at fair value
in a foreign currency, such as equities classified as available-for-sale
financial assets, are translated into the functional currency using the rate of
exchange at the date the fair value was determined. Translation differences
are included in the fair value reserve in equity.
(c) Group companies
The results and financial position of all the Group entities that have a
functional currency different from the presentation currency are translated
into the presentation currency as follows:
• assets and liabilities for each Balance sheet presented are translated
at the closing rate at the date of that Balance sheet;
• income and expenses for each income statement are translated at
average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated
at the rate on the dates of the transactions); and
• all resulting exchange differences are recognised as a separate
component in equity which is fair value and other reserves.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and translated
at the closing rate.
notes to tHe FinanCial statements CONTINuED
FOR THE YEAR ENDED 31 DECEMBER 2008
46 The evoluTion Group plc AnnuAl reporT & AccounTs 2008
Financial Liabilities - Redeemable Investment Shares
WDB capital uK equity Fund limited, a subsidiary of the Group, issues
redeemable investment shares to subscribers of its fund. The fund’s
redeemable investment shares can be redeemed, subject to certain
restrictions in relation to the timing of redemptions at the option of holders.
Therefore the Group deems these redeemable investment shares to be a
financial liability and classifies them under trade and other payables.
The value of these redeemable shares changes depending on the performance
of the fund. As WDB capital uK equity Fund limited is a subsidiary of the
Group, and therefore consolidated within the Groups Financial statements,
any change in the value of these redeemable investment shares issued to
third party’s leads to an adjustment to trade and other payables, and a
corresponding debit or credit being taken to other income.
Finance income and expense
interest income and expense for all interest-bearing financial instruments,
except for those classified as held for trading or designated at fair value
through profit or loss, are recognised within ‘finance income’ and ‘finance
expense’ in the income statement using the effective interest method.
The effective interest rate method is a method of calculating the amortised cost
of a financial asset or a financial liability and of allocating the interest income
or interest expense over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash payments or receipts through
the expected life of the financial instrument or, when appropriate, a shorter
period to the net carrying amount of the financial asset or financial liability.
The calculation of the effective interest rate includes all fees and points paid
or received between parties to the contract that are an integral part of the
effective interest rate, transaction costs and all other premiums or discounts.
Goodwill
Goodwill arises on business combinations, including the acquisition of
subsidiaries, associated entities, and represents the excess of the fair value
of the purchase consideration and direct costs of making the acquisition,
over the fair value of the Group’s share of the identifiable assets acquired
and the liabilities and contingent liabilities assumed on the date of the
acquisition. Goodwill is stated at cost less accumulated impairment losses,
which are charged to the income statement.
For calculating Goodwill, fair values of acquired identifiable assets, liabilities
and contingent liabilities are determined by reference to market values or by
discounting expected future cash flows to present value. This discounting is
either performed using market rates or by using risk-free rates and risk
adjusted expected future cash flows.
Intangible assets
intangible assets are stated at cost less accumulated amortisation and
accumulated impairment losses, if any. The following are the main
categories of intangible assets:
Intangible assets with a finite useful life
a) Brands: purchased brands are capitalised at cost less amortisation and
provisions for impairment over their estimated useful lives. expenditure
incurred to develop or maintain brands internally is recognised as an
expense in the period incurred.