I Basis of preparation of the financial statements
III Research and development
V Foreign currencies
Exchange differences arising from the retranslation at year-end exchange rates of the net investment in foreign undertakings, less exchange differences on borrowings which finance or provide a hedge against those undertakings, are taken to reserves and are reported in the statement of total recognised gains and losses.
All other exchange gains or losses are dealt with through the profit and loss account.
VII Intangible assets
VIII Tangible fixed assets
Semi-electronic telephone exchange equipment is in the course of being replaced by digital equipment and will be substantially written off by 2000.
The lives assigned to other significant tangible fixed assets are:
|Freehold buildings -||40 years|
|Leasehold land and buildings -||Unexpired portion of lease or 40 years, whichever is the shorter|
|duct -||25 years|
|cable -||10 to 37 years|
|radio and repeater equipment -||4 to 25 years|
|Digital telephone exchange equipment -||11 to 13 years|
|Computers and office equipment -||2 to 7 years|
|Payphones, other network equipment, motor vehicles and cableships -||3 to 20 years|
(c) Engineering stores|
Most engineering stores items are used in the construction of new plant and the remainder for maintenance. When issued, these stores are charged to the cost of specific plant or to the profit and loss account, as appropriate. They are stated at cost, less a provision for excess and obsolete items.
IX Fixed asset investments Investments in subsidiary and associated undertakings are stated in the balance sheet of the company at cost less amounts written off. Amounts denominated in foreign currency are translated into sterling at year-end exchange rates.
Investments in associated undertakings are stated in the group balance sheet at the groupís share of their net assets.
The groupís share of profits less losses of associated undertakings is included in the group profit and loss account.
Investments in other participating interests and other investments are stated at cost less amounts written off.
Equipment held and consumable items are stated at the lower of cost and estimated net realisable value, after provisions for obsolescence.
Work in progress on long-term contracts is stated at cost, after deducting payments on account, less provisions for any foreseeable losses.
XI Redundancy costs
If the most recent actuarial valuation of the groupís pension scheme shows a deficit, the estimated cost of providing incremental pension benefits in respect of employees leaving the group is charged against profit in the year in which the employees leave the group, within redundancy charges.
XII Pension schemes
The cost of providing pensions is charged against profits over employeesí working lives with the group using the projected unit method. Variations from this regular cost are allocated over the average remaining service lives of current employees to the extent that these variations do not relate to the estimated cost of providing incremental pension benefits in the circumstances described in XI above.
Interest is accounted for on the provision in the balance sheet which results from differences between amounts recognised as pension costs and amounts funded. The regular pension cost, variations from the regular pension cost, described above, and interest are all charged within staff costs.
XIV Financial instruments
Currency swap agreements and forward exchange contracts, used to reduce the impact of changes in currency rates on certain of the groupís long-term borrowings denominated in foreign currency, are valued at year-end exchange rates. The resulting gains or losses are offset against foreign exchange gains or losses on the related borrowings.
Premiums or discounts on financial instruments designated as hedges are reflected as adjustments to interest payable.