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
94 — Consolidated Financial Statements
Accounting Policies – continued
Leases
Where assets are fnanced by lease agreements that give rights similar
to ownership (fnance leases), the assets are treated as if they had been
purchased and the leasing commitments are shown as obligations to
the lessors. The capitalisation values of the assets are written of on a
straight-line basis over the shorter of the periods of the leases or the
useful lives of the assets concerned. The capital elements of future
leases are recorded as liabilities, while the interest elements are
charged to the income statement over the period of the leases to
produce a constant rate of charge on the balance of capital payments
outstanding.
For all other leases (operating leases) the rental payments are
charged to the income statement on a straight-line basis over the lives
of the leases.
Inventory
Inventory is stated at the lower of cost and net realisable value.
Cost comprises the cost of raw materials and an appropriate
proportion of labour and overheads in the case of work in progress
and fnished goods. Cost is calculated using the frst in f rst out
method in the Flight Support segment, and weighted average
method in the Aftermarket Services and Systems segment. Provision is
made for slow moving or obsolete inventory as appropriate.
Taxation
The charge for taxation is based on the proft for the year and takes
into account taxation deferred due to temporary dif erences between
the treatment of certain items for taxation and accounting purposes.
Current tax is calculated at tax rates which have been enacted or
substantially enacted at the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on
diferences between the carrying amounts of assets and liabilities in
the fnancial statements and the corresponding tax bases in the
computation of taxable proft, and is accounted for using the balance
sheet liability method.
No provision is made for temporary dif erences on unremitted
earnings of foreign subsidiaries, joint ventures or associates where the
Group has control and the reversal of the temporary diference is not
foreseeable.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that suf cient taxable profts will be available to allow all or
part of the asset to be recovered.
Deferred tax is calculated at tax rates which have been enacted
or substantially enacted at the balance sheet date and that are
expected to apply in the period when the liability is settled or the asset
is realised. Deferred tax is charged or credited in the income
statement, except when it relates to items charged or credited to
equity, in which case the deferred tax is also dealt with in equity.
Critical Accounting Judgements and Key Sources of Estimation
Uncertainty
The key assumptions concerning the future, and other key sources of
estimation uncertainty at the balance sheet date, that have a
signifcant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next fnancial year, are
discussed below. The judgements used by management in the
application of the Group’s accounting policies in respect of these
key areas of estimation are considered to be the most signifcant.
Impairment of goodwill, intangible and tangible f xed assets
Determining whether goodwill, intangible or tangible fxed assets are
impaired requires an estimation of the value in use of the cashgenerating
units to which the goodwill has been allocated or the
individual assets. The value in use calculation requires the entity to
estimate future cash fows expected to arise from the cash-generating
unit or asset and a suitable discount rate in order to calculate present
value. The carrying amount of goodwill, intangible and tangible fxed
assets at the balance sheet date was £485.0 million, £95.0 million and
£327.5 million respectively. Details regarding the goodwill and
tangible fxed asset carrying value and assumptions used in carrying
out the impairment reviews are provided in notes 8 and 9.
Pensions and other post-retirement benef ts
Determining the present value of future obligations of pension and
other post-retirement beneft schemes requires an estimation of
future mortality rates, future changes in employee benefts and length
of service. These assumptions are determined in association with
qualifed actuaries. The net pension liability related to def ned benef t
type schemes at the balance sheet date was £34.1 million. Details
regarding the carrying value and assumptions used in arriving at the
carrying values are provided in note 19.
Taxation
As part of the process for preparing the Group’s f nancial statements,
management is required to calculate income tax accruals. This process
involves estimates of the current tax exposures together with assessing
temporary diferences resulting from difering treatment of items for
tax and accounting purposes. These diferences result in deferred tax
assets and liabilities, which are included in the balance sheet.
As at 31 December 2010, the Group had a corporate tax liability
of £50.3 million (2009: £45.6 million). While the Group aims to ensure
the accruals for its tax liabilities are accurate, the process of agreeing
tax liabilities with the tax authorities can take several years.
Management judgement is therefore required in determining the
provision for income tax and the recognition of deferred tax assets and
liabilities; however, the actual tax liabilities could difer from the
amounts accrued.
As at 31 December 2010, the Group had a net deferred tax
liability of £42.2 million (2009: £29.9 million).
Provisions
The Group exercises judgement in measuring and recognising
provisions and the exposures to contingent liabilities related to
pending litigation or other outstanding claims subject to negotiated
settlement, mediation, arbitration or government regulation, as well as
other contingent liabilities (see note 25 to the consolidated f nancial
statements). Judgement is necessary in assessing the likelihood that a
pending claim will succeed, or a liability will arise, and to quantify the
possible range of the fnancial settlement. Because of the inherent
uncertainty in this evaluation process, actual losses may be dif erent
from the originally estimated provision.