Annual Report - EDP

notes to the EDP consolidated - Energias de Portugal, and company S.A. financial statementsNotes to for the the Consolidated years and ended Company 31 december Financial Statements 2012 and 2011for the years ended 31 December 2012 and 2011o) ProvisionsProvisions are recognised when: (i) the Group has a present legal, or constructive obligation, (ii) it is probable that settlement will be required in the future and (iii) areliable estimate of the obligation can be made.Provisions for dismantling and decommissioning in electric power plantsThe Group accounts for provisions for dismantling and decommissioning of assets when there is a legal, contractual or constructive obligation at the end of the assets’useful life. Therefore, such provisions have been booked for the electric power plants to cover the cost of restoring the location and land to their original condition. Theprovisions are calculated at the present amount of the expected future liability and are accounted for as part of the cost of the related property, plant and equipmentbeing depreciated on a straight-line basis over the useful life of those assets.Decommissioning and dismantling provisions are remeasured on an annual basis based on the best estimate of the settlement amount. The unwinding of thediscount at each balance sheet date is charged to the income statement.p) Recognition of costs and revenuesCosts and revenues are recognised in the year to which they relate regardless of when paid or received, in accordance with the accrual basis. Differences betweenamounts received and paid and the corresponding revenue and costs are recognised under other assets or other liabilities.Revenue includes amounts invoiced on the sale of products or services rendered, net of value added tax, rebates and discounts and after elimination of intra-groupsales.The invoicing of electricity sales is performed on a monthly basis. Monthly electricity invoices are based on real meter readings or on estimated consumptions basedon the historical data of each consumer. Revenues regarding the energy to be invoiced based on actual consumption not yet metered as at the balance sheet date isaccrued on the basis of recent average consumptions.Differences between estimated and actual amounts are recorded in subsequent periods.q) Financial resultsFinancial results include interest costs on borrowings, interest income on funds invested, dividend income, foreign exchange gains and losses, realised gains andlosses, as well as gains and losses on financial instruments and changes in the fair value of hedged risks, when applicable.Interest is recognised in the income statement on an accrual basis. Dividend income is recognised on the date the right to receive is established.Financial results also include impairment losses on available-for-sale investments.r) Income taxIncome tax recognised in the income statement includes current and deferred tax. Income tax is recognised in the income statement except to the extent that it relatesto items recognised directly in equity, in which case it is recognised in equity.Deferred taxes arising from the revaluation of available for sale investments and cash flow hedge derivatives recognised in equity are recognised in the incomestatement in the period the results that originated the deferred taxes are recognised.Current tax is the tax expected to be paid on the taxable income for the period, using tax rates enacted at the balance sheet date and any adjustment to tax payablein respect of previous years.Deferred taxes are calculated in accordance with the balance sheet liability method, considering temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and their respective tax basis, using the tax rates enacted or substantively enacted at the balance sheet date for eachjurisdiction and that is expected to be applied when the temporary difference is reversed.Deferred tax liabilities are recognised for all taxable temporary differences except for goodwill not deductible for tax purposes, differences arising on initial recognitionof assets and liabilities that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that they will probably notreverse in the foreseeable future. Deferred tax assets are recognised to the extent it is probable that future taxable profits will be available to absorb deductibletemporary differences for taxation purposes.The Group offsets, as established in IAS 12, the deferred tax assets and liabilities if, and only if:(i) the entity has a legally enforceable right to offset current tax assets against current tax liabilities; and(ii) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or differenttaxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in futureperiods in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.s) Earnings per shareBasic earnings per share are calculated by dividing consolidated and the company net profit attributable to the equity holders of EDP, S.A. by the weighted averagenumber of ordinary shares outstanding during the period, excluding the average number of shares held by the Group and by EDP, S.A., respectively.For the diluted earnings per share calculation, the weighted average number of ordinary shares outstanding is adjusted to consider conversion of all dilutive potentialordinary shares, such as convertible debt and stock options granted to employees. The dilution effect corresponds to a decrease in earnings per share resulting fromthe assumption that the convertible instruments are converted or the options granted are exercised.EDP - Annual Report 2012185