Annual Report 2016 | Page 62

Annual Report 2016
Annual Report 2016

Notes to the Financial Statements

The results of overseas operations are translated at the average rates of exchange during the year and their balance sheets at the rates prevailing at the balance sheet date . Exchange differences arising on translation of the opening net assets and results of overseas operations and on foreign currency borrowings , to the extent that they hedge the Group ’ s investment in such operations , are reported in the consolidated statement of comprehensive income . All other exchange differences are included in the profit and loss account .
( l ) Pensions The profit and loss charge or credit in respect of defined benefit pension schemes represent :
- The current service costs arising from active member employee services rendered during the year and the cost or credits associated with benefit changes , settlements and curtailments . These are charged or credited against operating profit .
- The net interest charge or credit on the net defined benefit deficit or surplus . This is charged or credited within finance charges ( net ).
Actuarial gains and losses are charged or credited directly to the consolidated statement of comprehensive income net of deferred tax . The defined benefit scheme liabilities , valued using the projected unit method and the fair value of scheme assets , are recognised in the relevant balance sheet as a net retirement benefit surplus or obligation before the related deferred tax which is reported separately .
In accordance with the agreed policy in the Group , as the South Staffordshire section of the defined benefit Water Companies Pension Scheme is a multi-employer scheme with deferred members of the scheme being employees of a number of companies in the Group , this section is accounted for in the individual company accounts of South Staffordshire Plc , the holding company of the participating companies in the Group . The Cambridge Water section of the defined benefit Water Companies Pension Scheme is accounted for in the accounts of Cambridge Water Plc .
In respect of the Group defined contribution schemes the amounts charged to the profit and loss account are the contributions payable in respect of the year .
( m ) Research and Development Research and development expenditure is charged to the profit and loss account in the year in which it is incurred , unless the specific criteria under FRS 102 for capitalisation of development costs have been met , in which case , the costs are capitalised and depreciated over the estimated useful life of the subsequent revenue streams .
( n ) Taxation Current corporation tax payable is provided on taxable profits at the current rate . Deferred tax is provided in respect of capital allowances in excess of depreciation and all other timing differences that have originated but not reversed at the balance sheet date using future tax rates anticipated at the time of reversal that have been enacted at the balance sheet date .
( o ) Financial Instruments
Financial Assets All financial assets , being cash and cash equivalents , debtors and loans receivable are measured at amortised cost . Cash and cash equivalents comprise cash at bank and in hand and short-term deposits .
Financial Liabilities Financial liabilities other than derivative financial liabilities ( see Hedge Accounting below ) are initially measured at fair value and subsequently measured at amortised cost . The premium / discount and costs of issue are amortised over the life of the instrument , with the amortisation being included in the effective interest rate of the instrument which is included in finance charges ( net ) in the profit and loss account .
( p ) Hedge Accounting The Group designates certain hedging instruments , including derivatives , as cash flow hedges . At inception of the hedge relationships , the Group documents the relationships between the hedging instruments and the hedged items along with the Group ’ s risk management strategy and objectives in relation to each hedge . At the inception of the hedges , and on an ongoing basis , the Group documents whether the hedging instruments are highly effective in offsetting changes in cash flows of hedged items .
The effective proportion of changes in fair value of hedging instruments that are designated and qualify as cash flow hedges are deferred in equity ( net of tax ) in a hedging reserve . The gain or loss relating to the ineffective proportion is recognised immediately in the profit and loss account . The amounts deferred in the hedging reserve are recycled to the profit and loss account in the periods when the hedged items are recognised in the profit and loss account .
Hedge accounting is discontinued when the Group de-designates the hedging relationships , the hedging instruments expire , are terminated or are sold or they no longer qualify for hedge accounting . Any cumulative gain or loss that remains in the hedging reserve at that time is recognised when hedged forecast transactions are ultimately recognised in the profit and loss account . When forecast transactions are no longer expected to occur , the cumulative gains or losses are recognised immediately in the profit and loss account .
( q ) Related Party Transactions As at 31 March 2016 , the Company was an indirectly wholly owned subsidiary undertaking of Hydriades IV Limited , the ultimate parent company in the United Kingdom . As such , the Company has taken advantage of the exemption from disclosing transactions with other members of the group headed by Hydriades IV Limited , as consolidated financial statements for this company in which the accounts of the Company and its subsidiaries are included , are publicly available . The Group has no other related party transactions requiring disclosure other than those disclosed in note 30 .
( r ) Exceptional Items The Group separately presents certain items on the face of the profit and loss account as exceptional . Exceptional items are material items of income , gain , profit or expense that , because of their size or incidence , are presented separately to allow an understanding of the Group ’ s financial performance and comparison to the prior year . They are not expected to be incurred on a recurring basis . Additional details of exceptional items in the year ended 31 March 2016 are set out in note 7 .
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