Vodafone 2001 Annual Report Download - page 64

62
Vodafone Group Plc
Annual Report & Accounts
for the year ended
31 March 2001
UNITED STATES ACCOUNTING PRINCIPLES continued
Summ ary of differen ces between accou n tin g principles gen erally accepted in th e UK
an d th e US
The consolidated financial statements are prepared in accordance with UK generally accepted accounting principles (“UK GAAP”), which differ in
certain material respects from those generally accepted in the US (“US GAAP”). The differences that are material to the Group relate to the
following items and the necessary adjustments are shown on page 61.
Non-con solidated subsidiaries
Under UK GAAP, the results and assets of Omnitel Pronto Italia S.p.A. and Airtel Móvil S.A. have been consolidated in the Group’s financial
statements from 12 April 2000 and 29 December 2000, respectively. Under US GAAP, as a result of the significant participating rights held by
minority shareholders, the Group’s interests in Omnitel Pronto Italia S.p.A. and Airtel Móvil S.A. have been accounted for as associated
undertakings under the equity method of accounting.
Deferral of con nection reven u es and in com e
Under Vodafone’s UK GAAP accounting policy, connection revenues and related costs are recognised upon activation of a mobile handset on a
cellular network. Under US GAAP, connection revenues are recognised over the period that a customer is expected to remain connected to a
network. Connection costs directly attributable to the income deferred are recognised over the same period. Where connection costs exceed
connection revenues, the excess costs are charged in the profit and loss account immediately upon activation of the handset.
Goodwill an d other in tangibles
Under UK GAAP, the policy followed prior to the introduction of FRS 10, “Goodwill and Intangible Assets” (which is effective for accounting periods
ended on or after December 23, 1998 and was adopted on a prospective basis) was to write off goodwill against shareholders’ equity in the year
of acquisition. FRS 10 requires goodwill to be capitalised and amortised over its estimated useful economic life. Under US GAAP, intangibles
arising on the acquisition of an equity stake would be capitalised and amortised over their useful lives.
Investments in associated undertakings, under US GAAP, can also include an element of goodwill in the amount of the excess investment
over the acquirer’s share in the fair value of the net assets at the date of the investment. Under UK GAAP, the treatment followed prior to the
implementation of FRS 10 was to write off the excess of the purchase consideration over the fair value of the stake in the associated undertaking
acquired against shareholders’ equity in the year of purchase.
Under UK GAAP and US GAAP the purchase price of a transaction accounted for as an acquisition is based on the fair value of the consideration.
In the case of share consideration, under UK GAAP the fair value of such consideration is based on the share price at completion of the
acquisition or the date when the transaction becomes unconditional. Under US GAAP the fair value of the share consideration is based on the
average share price over a reasonable period of time before and after the proposed acquisition is announced. This will result in a difference in the
fair value of the consideration for the acquisition and consequently in the amount of goodwill capitalised and amortised.
Mannesmann was recorded as a fixed asset investment under both UK GAAP and US GAAP at 31 March 2000 as the Group did not have the right
to control or the ability to exercise significant influence over Mannesmann prior to receiving European Commission approval on April 12, 2000.
As a result of the difference in the determination of the purchase price between UK GAAP and US GAAP, the amount recorded at 31 March 2000
for the investment in Mannesmann was £9,054m greater under US GAAP than under UK GAAP.
Reorgan isation costs
Under UK GAAP, costs incurred in reorganising acquired businesses are charged to the profit and loss account as post-acquisition expenses.
Under US GAAP, certain of such costs are considered in the allocation of purchase consideration and thereby the determination of goodwill arising
on acquisition.
Capitalised in terest
Under UK GAAP, the Group’s policy is not to capitalise interest costs on borrowings in respect of the acquisition of tangible and intangible fixed
assets. Under US GAAP, the interest cost on borrowings used to finance the construction of network assets is capitalised during the period of
construction until the date that the asset is placed in service. Interest costs on borrowings to finance the acquisition of licences are also
capitalised until the date that the related network service is launched. Capitalised interest costs are amortised over the estimated useful
economic lives of the related assets.
In com e taxes
Deferred taxation – Under the UK GAAP partial provision method, deferred taxation is only provided where timing differences are expected to
reverse in the foreseeable future. For US GAAP, under the liability method, deferred taxation is provided for temporary differences between the
financial reporting basis and the tax basis of assets and liabilities at enacted rates expected to be in effect when these amounts are realised
or settled.
Tax benefit on option exercises – Under UK GAAP, the tax benefit received on the exercise of share options by employees, being the tax on the
difference between the market value on the date of exercise and the exercise price, is shown as a component of the tax charge for the period.
Under US GAAP, the tax benefit is shown as a component of paid-in capital on issue of shares.