Accounting Policies continued
( vi ) Income recognition Interest income Interest income is recognised using the effective interest method . When a receivable is impaired , the Group reduces the carrying amount to its recoverable amount , being the estimated future cash flow discounted at the original effective interest rate of the instrument , and continues unwinding the discount as interest income . Interest income on impaired loans is recognised using the original effective interest rate .
Dividends Dividends are recognised as revenue when the right to receive payment is established . This applies even if they are paid out of pre-acquisition profits . However , the investment may need to be tested for impairment as a consequence .
Borrowings Borrowings are initially recognised at fair value , net of transaction costs incurred . Borrowings are subsequently measured at amortised cost . Any difference between the proceeds ( net of transaction costs ) and the redemption amount is recognised in the Income Statement over the period of the borrowings using the effective interest method . Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down . In this case , the fee is deferred until the draw down occurs . To the extent there is no evidence that it is probable that some or all of the facility will be drawn down , the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates .
Borrowings are removed from the Balance Sheet when the obligation specified in the contract is discharged , cancelled or expired . The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid , including any non-cash assets transferred or liabilities assumed , is recognised in the Income Statement as other income or finance costs .
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period .
Cash and cash equivalents For the purpose of presentation in the Cash Flow Statement , cash and cash equivalents includes cash on hand , deposits held at call with financial institutions , other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value , and bank overdrafts . Bank overdrafts are shown within borrowings in current liabilities in the Balance Sheet .
Leases Leases of property , plant and equipment where the Group , as lessee , has substantially all the risks and rewards of ownership are classified as finance leases . Finance leases are capitalised at the lease ’ s inception at the fair value of the leased property or , if lower , the present value of the minimum lease payments . The corresponding rental obligations , net of finance charges , are included in other short-term and long-term payables . Each lease payment is allocated between the liability and finance cost . The finance cost is charged to the Income Statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period . The property , plant and equipment acquired under finance leases is depreciated over the asset ’ s useful life or over the shorter of the asset ’ s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term . Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases ( note 40 ). Payments made under operating leases ( net of any incentives received from the lessor ) are charged to the Income Statement on a straight-line basis over the period of the leases .
Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method , less provision for impairment .
Inventory Inventories are stated at the lower of moving average cost and net realisable value . Moving average is a costing method used under a perpetual inventory system whereby , after each purchase , average unit cost is recomputed by adding the cost of purchased units to the cost of units in inventory and dividing by the new total number of units . Net realisable value comprises selling price net of trade but before settlement discounts , less all costs to be incurred in marketing , selling and distribution .
Income tax The income tax expense or credit for the period is the tax payable on the current period ’ s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses .
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company ’ s subsidiaries and associates operate and generate taxable income . Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation . It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities .
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