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Wavin Annual Report 2010 | page 90(z) ExpensesOperating expenses (sales, distribution and administrative) are charged to income as incurred. Payments made underoperational lease contracts are recognised in the income statement on a straight-line basis over the term of the lease.(aa) Non-recurring income and expenseNon-recurring income and non-recurring expenses are signifi cant one-off income and expenses out of the ordinary course ofbusiness which result from e.g. restructuring of activities, sale of assets, sale of associates, impairment charges, costs relatedto acquisitions which cannot be capitalised, liquidation losses and the effects of the adjustment of income tax rates.Non-recurring income and non-recurring expenses are reported separately to give a better refl ection of the operatingperformance of the Group for the periods concerned.(ab) Finance income and expenseFinance income comprises interest income on funds invested, gains on the disposal of available-for-sale fi nancial assets,changes in the fair value of fi nancial assets at fair value through profi t or loss, foreign currency gains as well as gains onhedging instruments that are recognised in the income statement. Interest income is recognised as it accrues, using theeffective interest method.Finance expense comprises interest expense on borrowings, amortisation of fees relating to the arrangement of borrowings,foreign currency losses, changes in the fair value of fi nancial assets at fair value through profi t or loss, impairment lossesrecognised on fi nancial assets and losses on hedging instruments that are recognised in the income statement. Borrowingcosts are recognised in the income statement using the effective interest method. As the actual positive and negativepositions under the notional cash pool system are netted, the related fi nance income and expense are netted as well.Foreign currency gains and losses arising from a group of similar transactions are reported on a net basis. Such gains andlosses are, however, reported separately if they are material.(ac) Income tax expenseIncome tax is accounted for in accordance with the tax regulations of the country of domicile concerned.Income tax on the result for the year comprises current and deferred tax. Income tax is recognised in the income statementunless it relates to items recognised directly in equity, in which case the income tax is recognised directly in equity or othercomprehensive income.Current tax is the expected tax payable on the taxable income for the year, using tax rates valid at the balance sheet date andany adjustment to tax payable in respect of previous years.Deferred tax is recognised using the balance sheet liability method, providing for temporary differences between the carryingamounts of assets and liabilities for fi nancial reporting purposes and the amounts used for taxation purposes. The followingtemporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets orliabilities that affect neither accounting nor taxable profi t nor differences relating to investments in subsidiaries to the extentthat they will probably not reverse in the foreseeable future.The amount of deferred tax recognised is based on the expected realisation or settlement of the carrying amount of assetsand liabilities using tax rates that are expected to apply to the period when the asset is realised or the liability is settled basedon the tax rates that have been enacted on the balance sheet date. The tax rates are based on the laws that have beenenacted or substantially enacted at the reporting date. No provision for deferred tax liabilities is made when it is not probablethat profi t taxes will be paid due to available losses carried forward.A deferred tax asset is recognised only to the extent that it is probable that future taxable profi ts will be available againstwhich the asset can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it isno longer probable that the related tax benefi t will be realised.(ad) Discontinued operationsA discontinued operation is a clearly distinguishable component of the Group’s business that is abandoned or terminatedpursuant to a single plan, and which represents a separate major line of business or geographic area of operations.(ae) Earnings per shareThe Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profi tor loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstandingduring the period.