Annual Report 2010 in PDF - BBA Aviation

Financial statements
85 Independent Auditor’s
Report to the Members of
BBA Aviation plc in Respect
of the Consolidated
Financial Statements
86 Consolidated Income
Statement
87 Consolidated Statement of
Comprehensive Income
88 Consolidated Balance Sheet
89 Consolidated Cash Flow
Statement
90 Consolidated Statement of
Changes in Equity
91 Accounting Policies of
the Group
95 Notes to the Consolidated
Financial Statements
126 Independent Auditor’s
Report to the Members of
BBA Aviation plc in Respect
of the Parent Company
Financial Statements
127 Company Balance sheet
128 Accounting Policies of
the Company
129 Notes to the Company
Financial Statements
134 Principal Subsidiary
Undertakings
135 Five Year Summary
136 Shareholder Information
92 — Consolidated Financial Statements
Accounting Policies – continued
Derivative Financial Instruments and Hedge Accounting
Derivative fnancial instruments utilised by the Group comprise
interest rates swaps, cross-currency swaps and foreign exchange
contracts. All such instruments are used for hedging purposes to
manage the risk profle of an underlying exposure of the Group in line
with the Group’s risk management policies. All derivative instruments
are recorded on the balance sheet at fair value. Recognition of gains or
losses on derivative instruments depends on whether the instrument
is designated as a hedge and the type of exposure it is designed
to hedge.
The efective portion of gains or losses on cash fow hedges are
deferred in equity until the impact from the hedged item is
recognised in the income statement. The inef ective portion of such
gains and losses is recognised in the income statement immediately,
and is included in the “other gains and losses” line of the income
statement.
Hedges of net investments in foreign operations are accounted
for similarly to cash fow hedges. Any gain or loss on the hedging
instrument relating to the efective portion of the hedge is recognised
in equity in the foreign currency translation reserve. The gain or loss
relating to the inefective portion is recognised immediately, and is
included in the operating proft line of the income statement. Gains
and losses deferred in the foreign currency translation reserve are
recognised in proft or loss on disposal of the foreign operation.
Changes in the fair value of the derivative f nancial instruments
classifed as fair value through proft or loss (FVTPL) and those that do
not qualify for hedge accounting are recognised in the income
statement as they arise, and are included in the operating proft line of
the income statement. Any interest earned or paid on f nancial
instruments at FVTPL is charged to net interest. Fair value is
determined in the manner described in note 17.
Financial Instruments
Financial assets and fnancial liabilities are recognised on the Group’s
balance sheet when the Group becomes a party to the contractual
provisions of the instrument. Financial assets are accounted for at the
trade date.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and deemed
deposits, and other short-term highly-liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignifcant risk of changes in value.
Trade receivables
Trade receivables do not carry any interest and are stated at their
nominal value as reduced by appropriate allowances for estimated
irrecoverable amounts.
Financial liabilities and equity
Financial liabilities and equity instruments are classifed according to
the substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a residual interest
in the assets of the group after deducting all of its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the
proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue
costs, are accounted for on an accrual basis to the proft and loss
account using efective interest method and are added to the carrying
amount of the instrument to the extent that they are not settled in the
period in which they arise.
Trade payables
Trade payables are not interest bearing and are stated at their
nominal value.
Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
Revenue Recognition
Revenue is measured at the fair value of the consideration received or
receivable, and represents amounts receivable for goods supplied and
services provided by the Group excluding intercompany transactions,
sales by associated undertakings and sales taxes.
Within the engine overhauls business, turnover and associated
proft are recognised on a percentage of completion basis once the
terms of the contract have been agreed with the customer and
the ultimate proftability of the contract can be determined with
reasonable certainty. The percentage of completion is based on
hours incurred.
Research and Development Expenditure
Research expenditure is charged against income in the year in which it
is incurred. An internally-generated intangible asset arising from the
Group’s development expenditure is recognised only if the asset can
be separately identifed, it is probable that the asset will generate
future economic benefts and the development costs of the asset can
be measured reliably.
Post-Retirement Benefits
Payments to defned contribution retirement beneft schemes are
charged as an expense as they fall due.
For defned beneft retirement beneft schemes, the cost is
determined using the Projected Unit Credit Method, with actuarial
valuations being carried out annually on 31 December. Actuarial gains
and losses are recognised in full in the period in which they occur.
They are recognised outside proft or loss and presented in the
statement of comprehensive income.
Past service cost is recognised immediately to the extent that
the benefts are already vested, and otherwise is amortised on
a straight-line basis over the average period until the benefts
become vested.
The retirement beneft obligation recognised in the balance
sheet represents the present value of the defned beneft obligation as
adjusted for unrecognised past service costs, and reduced by the fair
value of scheme assets. Any asset resulting from this calculation is
limited to past service cost, plus the present value of available refunds
and reductions in future contributions to the plan.
Retirement beneft scheme contribution levels are determined
by valuations undertaken by independent qualifed actuaries.