Vodafone Group Plc Annual Report for the year ended 31 March 2012

Vodafone Group Plc
Annual Report 2012 104
Notes to the consolidated financial statements (continued)
2. Significant accounting policies (continued)
The carrying amount of deferred tax assets is reviewed at each reporting period date and adjusted to reflect changes in probability 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 by the reporting period date.
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
either relate to income taxes levied by the same taxation authority on either the same taxable entity or on different taxable entities which intend to
settle the current tax assets and liabilities on a net basis.
Tax is charged or credited to the income statement, except when it relates to items charged or credited to other comprehensive income or directly to
equity, in which case the tax is recognised in other comprehensive income or in equity.
Financial instruments
Financial assets and financial liabilities, in respect of financial instruments, are recognised on the Group’s statement of financial position when the
Group becomes a party to the contractual provisions of the instrument.
Trade receivables
Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable
amounts. Estimated irrecoverable amounts are based on the ageing of the receivable balances and historical experience. Individual trade
receivables are written off when management deems them not to be collectible.
Other investments
Other investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms
require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, including
transaction costs.
Other investments classified as held for trading and available-for-sale are stated at fair value. Where securities are held for trading purposes, gains
and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses
arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time
the cumulative gain or loss previously recognised in equity, determined using the weighted average cost method, is included in the net profit or
loss for the period.
Other investments classified as loans and receivables are stated at amortised cost using the effective interest method, less any impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that are readily convertible to
a known amount of cash and are subject to an insignificant risk of changes in value.
Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
Financial liabilities and equity instruments
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered
into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities and includes no obligation to deliver cash or other financial assets. The accounting policies
adopted for specific financial liabilities and equity instruments are set out below.
Capital market and bank borrowings
Interest bearing loans and overdrafts are initially measured at fair value (which is equal to cost at inception), and are subsequently measured at
amortised cost, using the effective interest rate method, except where they are identified as a hedged item in a fair value hedge. Any difference
between the proceeds net of transaction costs and the amount due on settlement or redemption of borrowings is recognised over the term of
the borrowing.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issuance costs.
Derivative financial instruments and hedge accounting
The Group’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates.
The use of financial derivatives is governed by the Group’s policies approved by the Board of directors, which provide written principles on the use
of financial derivatives consistent with the Group’s risk management strategy. Changes in values of all derivatives of a financing nature are included
within investment income and financing costs in the income statement. The Group does not use derivative financial instruments for speculative
purposes.
Derivative financial instruments are initially measured at fair value on the contract date and are subsequently remeasured to fair value at each
reporting date. The Group designates certain derivatives as:
aa
hedges of the change of fair value of recognised assets and liabilities (‘fair value hedges’);
aa
hedges of highly probable forecast transactions or hedges of foreign currencies risk of firm commitments (“cash flow hedges”); or
aa
hedges of net investments in foreign operations.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge
accounting, or the Company chooses to end the hedging relationship.