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Deferred taxDeferred tax is recognised on differences between thecarrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in thecomputation of taxable profit, and is accounted for usingthe balance sheet liability method. Deferred tax liabilitiesare generally recognised for all taxable temporarydifferences, and deferred tax assets are generallyrecognised for all deductible temporary differences tothe extent that it is probable that taxable profits willbe available against which those deductible temporarydifferences can be utilised. Such assets and liabilities arenot recognised if the temporary difference arises fromgoodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in atransaction that affects neither the taxable profit nor theaccounting profit.Deferred tax assets are recognised on the basis of taxabletemporary differences on investments in subsidiaries andassociates and joint ventures, unless the Group is able tocontrol the reversal of the temporary difference and it isprobable that the temporary difference will not reverse inforeseeable future.The carrying amount of deferred tax assets is reviewed ateach balance sheet date and reduced to the extent that itis no longer probable that sufficient taxable profits will beavailable to allow all or part of the asset to be recovered.Deferred tax assets and liabilities are measured at the taxrates that are expected to apply in the period in whichthe liability is settled or the asset realised, based on taxlaws that have been enacted or substantively enacted bythe balance sheet date. The measurement of deferred taxliabilities and assets reflects the tax consequences thatwould follow from the manner in which the Companyexpects, at the reporting date, to recover or settle thecarrying amount of its assets and liabilities.Deferred tax assets and liabilities are offset when thereis a legally enforceable right to set off current tax assetsagainst current tax liabilities and when they relate toincome taxes levied by the same taxation authority andthe Company and the Group intend to settle its currenttax assets and liabilities on a net basis.Current and deferred tax for the periodCurrent and deferred tax are recognised as an expense orincome in profit or loss, except when they relate to itemscredited or debited directly to equity, in which case thetax is also recognised directly in equity, or where theyarise from the initial accounting for a business combination.In the case of a business combination, the tax effectis taken into account in calculating goodwill or in determiningthe excess of the acquirer’s interest in the net fairvalue of the acquiree’s identifiable assets, liabilities andcontingent liabilities over cost.Financial assetsInvestments are recognised and derecognised on atrade date where the purchase or sale of an investmentis under a contract whose terms require delivery of theinvestment within the timeframe established by themarket concerned, and are initially measured at fair value,net of transaction costs, except for those financial assetsclassified as at fair value through profit or loss, which areinitially measured at fair value.Financial assets are classified as ‘available for sale’(AFS) financial assets and ‘loans and receivables’. Theclassification depends on the nature and purpose of thefinancial assets and is determined at the time of initialrecognition.Effective interest methodThe effective interest method is a method of calculatingthe amortised cost of a financial asset and of allocatinginterest income over the relevant period. The effectiveinterest rate is the rate that exactly discounts estimatedfuture cash receipts through the expected life of thefinancial asset, or, where appropriate, a shorter period.Income is recognised on an effective interest basis fordebt instruments.Annual report 2007101