Vodafone 2002 Annual Report Download - page 81

Notes to the Consolidated Financial Statements Vodafone Group Plc 79Annual Report & Accounts and Form 20-F
Turnover
Turnover from mobile telecommunications primarily comprises amounts charged to contract customers in respect of monthly access charges, which are
invoiced and recorded as part of a periodic billing cycle, and airtime usage which is recognised as the mobile services are provided. Unbilled turnover
resulting from mobile services provided to contract customers from the billing cycle date to the end of each period is accrued and unearned monthly access
charges relating to periods after each accounting period end are deferred. Turnover from sales of prepaid credit is deferred until such time as the customer
uses the airtime. Other turnover from mobile communications primarily comprises equipment sales, which are recognised upon delivery to customers, and
connection charges, which are recognised upon activation of the customer on the network.
Turnover also includes amounts charged to customers of the Group’s fixed line businesses, primarily in respect of access charges and line usage.
Derivative financial instruments
Transactions in derivative financial instruments are undertaken for risk management purposes only.
The Group uses derivative financial instruments to hedge its exposure to interest rate and foreign currency risk. To the extent that such instruments are
matched against an underlying asset or liability, they are accounted for using hedge accounting.
Gains or losses on interest rate instruments are matched against the corresponding interest charge or interest receivable in the profit and loss account
over the life of the instrument. For foreign exchange instruments, gains or losses and premiums or discounts are matched to the underlying transactions
being hedged.
Termination payments made or received in respect of derivative financial instruments held for hedging purposes are spread over the life of the underlying
exposure where the underlying exposure continues to exist. Where the underlying exposure ceases to exist, any termination payments are taken to the profit
and loss account.
Pensions
Costs relating to defined benefit plans, which are subject to periodic valuations calculated by professionally qualified actuaries, are charged against profits,
within staff costs so that the expected costs of providing pensions are recognised during the period in which benefit is derived from the employees’ services.
The costs of the various pension schemes may vary from the funding, dependent upon actuarial advice, with any difference between pension cost and
funding being treated as a provision or prepayment.
Defined contribution pension costs charged to the profit and loss account represent contributions payable in respect of the period.
Research and development
Expenditure on research and development is written off in the year in which it is incurred.
Goodwill
Goodwill is calculated as the surplus of cost over fair value attributed to the net assets (excluding goodwill) of subsidiary, joint venture and associated
undertakings acquired.
For acquisitions made after the financial year ended 31 March 1998, goodwill is capitalised and held as a foreign currency denominated asset, where
applicable. Goodwill is amortised on a straight line basis over its estimated useful economic life. For acquired network businesses, whose operations are
governed by fixed term licences, the amortisation period is determined primarily by reference to the unexpired licence period and the conditions for licence
renewal. For other acquisitions, including customer bases, the amortisation period for goodwill is typically between 5 and 10 years.
For acquisitions made before 1 April 1998, when FRS 10, “Goodwill and Intangible Assets”, was adopted, goodwill was written off directly to reserves.
Goodwill written off directly to reserves is reinstated in the profit and loss account when the related business is sold.