Vodafone 2002 Annual Report Download - page 131

Notes to the Consolidated Financial Statements Vodafone Group Plc 129Annual Report & Accounts and Form 20-F
(f) Income taxes
Deferred taxation – Under UK GAAP deferred tax is provided in full on timing differences that result in an obligation at the balance sheet date to pay more
tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Under US GAAP, deferred
tax is accounted for on all temporary differences and a valuation adjustment is established in respect of those deferred taxation assets where it is more likely
than not that some portion will not be realised. In addition, deferred taxation assets are recognised for future deductions and utilisation of tax carry-forwards,
subject to a valuation allowance.
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.
(g) Minority interests
The adjustments in respect of minority interests primarily relate to intangibles and provisions for deferred tax which have been recognised for US GAAP
purposes by a less than 100% owned subsidiary undertaking.
(h) Loss on sale of business
The loss on sale of business represents the loss on sale of tele.ring which was sold fifteen months after the date of acquisition.
Under UK GAAP, the fair value of an acquired business can be amended up until the end of the financial year after acquisition. Under US GAAP, the fair value
can only be adjusted for one year following acquisition.
(i) Other adjustments
Licence fee amortisation – Under UK GAAP, the Group has adopted a policy of amortising licence fees in proportion to the expected usage of the network
during the start up period and then on a straight line basis. Under US GAAP, licence fees are amortised on a straight line basis from the date that operations
commence to the date the licence expires.
Pension costs – Under both UK GAAP and US GAAP pension costs are provided so as to provide for future pension liabilities. However, there are differences
in the prescribed methods of valuation, which give rise to GAAP adjustments to the pension cost and the pension prepayment.
Capitalisation of computer software costs – Under UK GAAP, costs that are directly attributable to the development of computer software for continuing use in
the business, whether purchased from external sources or developed internally, are capitalised. Under US GAAP, data conversion costs and costs incurred
during the research stage of software projects are not capitalised.
Investments in own shares – Investment in the Company’s own shares are included within other fixed asset investments under UK GAAP. US GAAP requires
investments in own shares to be shown as a deduction from equity.
Gain on disposal of fixed assets and fixed asset investments – Under US GAAP, the net gain on disposal of fixed assets and fixed asset investments of £Nil
and £Nil, respectively (2001: £6m and £6m, 2000: £Nil and £954m) would be included within operating income.
Derivative instruments – All the Group’s transactions in derivative financial instruments are undertaken for risk management purposes only and are used to
hedge its exposure to interest rate and foreign currency risk. In accordance with UK GAAP, to the extent that such instruments are matched against an
underlying asset or liability, they are accounted for as hedging transactions and recorded at appropriate historical amounts, with fair value information
disclosed in the Notes to the Consolidated Financial Statements. Under US GAAP, SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities”, the Group’s derivative financial instruments, together with any separately identified embedded derivatives, are reported as assets or liabilities on
the Group’s balance sheet at fair value with changes in their fair value accounted for through either the profit and loss account or statement of other
comprehensive income. However, the Group has designated certain of its derivative instruments as hedges for US GAAP purposes and accordingly,
recognises any corresponding changes in the fair value of the underlying assets, liabilities or positions being hedged.
Upon first adopting SFAS No. 133, a cumulative transition adjustment was made which increased US GAAP net income and other comprehensive income by
£17m and £Nil respectively. For the year ended 31 March 2002, the impact of SFAS No. 133 on the Group’s financial position and results under US GAAP is
to decrease US GAAP net income and Other comprehensive income by £38m and £Nil respectively.