Annual Reports Keepmoat Homes Annual Report 2018 | Page 34

Principal consolidated accounting policies

Keepmoat . com 34

Cash and cash equivalents

In the consolidated statement of cash flows , cash and cash equivalents includes cash in hand , deposits held at call with banks and other short-term highly liquid investments with maturities of three months or less . Bank overdrafts are also included , as they are an integral part of the Group ’ s cash management . In the consolidated balance sheet , bank overdrafts are shown within borrowings in current liabilities .

Trade payables

Trade payables on normal terms are not interest bearing and are stated at their nominal value . Trade payables on extended terms , particularly in respect of land , are recorded at their fair value on the date of acquisition of the asset to which they relate and subsequently held at amortised cost . The discount to the nominal value is amortised over the period of the credit term and charged to finance costs using the effective interest rate . Changes in estimates of the final payment due are taken to inventory ( land held for and under development ) and in due course , to cost of sales in the income statement .

Loans and borrowings

Interest bearing bank loans and other borrowings are recorded initially at their fair value , net of direct transaction and debt issue costs .

Such instruments are subsequently carried at their amortised cost and finance charges , including commitment fees , arrangement fees and any other costs directly related to the borrowings are recognised over the term of the instrument using the effective rate of interest .

Any instrument repaid before the end of the contractual term will result in any unamortised costs being immediately recognised in the income statement . the reporting date and any adjustment to tax in respect of previous years . Where current tax losses are available but not utilised in the period , a deferred tax asset is recognised to the extent that it is considered recoverable .

Taxable profit differs from that reported in the income statement because it is adjusted for items of income or expense that are assessable or deductible in other years , or are never assessable or deductible .

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax rates used in the computation of taxable profit and is accounted for using the balance sheet liability method .

Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised in full if future taxable profits will be available against which deductible temporary differences can be utilised . Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition ( other than in a business combination ) of other assets and liabilities in a transaction which affects neither the taxable profit nor the accounting profit .

Deferred tax assets and liabilities are not discounted and are only offset to the extent that that there is a legally enforceable right to offset current tax assets and liabilities .

Government grants

Government grants are recognised at fair value when there is reasonable assurance that the Group will comply with the conditions attaching to them and the grants will be received . Grants related to purchase of assets are recognised against assets and unwound over the useful lives of the related assets .

Equity instruments

Equity instruments such as ordinary share capital issued by the Company are recorded at the proceeds received net of directly attributable incremental issue costs . Proceeds are allocated between nominal value and share premium .

Income tax

Income tax expense represents the current and deferred tax charges .

Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity .

Current tax is the Group ’ s expected tax liability on taxable profits for the year using tax rates substantively enacted at