AVESCO GROUP PLC ANNUAL REPORT 2008 37
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Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group
The following standards, amendments and interpretations to existing standards have been published and are mandatory for accounting periods beginning on
or after 1 January 2008 or later periods, but the Group has not adopted them early.
IAS 23 (Amendment) ‘Borrowing Costs’ (effective from 1 January 2009). It requires an entity to capitalise borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The
option of immediately expensing those borrowing costs will be removed. The Group will apply IAS 23 (Amended) from 1 October 2009 but it is currently not
applicable to the Group as there are no qualifying assets.
IFRS 8 ‘Operating Segments’ (effective from 1 January 2009.) IFRS 8 requires that entities adopt the ‘management approach’ to reporting the financial
performance of its operating segments. This means that information will be reported in respect of those components of an entity for which separate financial
information is available which management use internally for evaluating segment performance and deciding how to allocate resources to operating segments.
The amount of each operating segment item to be reported is the measure reported to the chief operating decision maker, which in some instances will be non-
GAAP. The standard will require explanation of the basis on which the segment information is prepared and a reconciliation to the amount recognised in the
consolidated financial statements. The Group will apply IFRS 8 from 1 October 2009.
IFRIC 14 - IAS 19 – ‘The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’ (effective for annual periods beginning on or after 1
January 2008). IFRIC 14 provides guidance on the amount of pension scheme surpluses that companies can include as a defined benefit asset in their balance
sheets and also situations when a funding requirement, including the UK scheme specific funding, may give rise to additional liabilities. The Group will apply
IFRIC 14 from 1 January 2008 but it is not expected to have any impact on the Group’s financial statements.
Interpretations to existing standards that are not yet effective and not relevant for the Group’s operations
The following standards, amendments and interpretations to published accounts are mandatory for accounting periods beginning on or after 1 January 2008
but are not relevant for the Group’s operations:
IFRIC 12, ‘Service concession arrangements’, applies to annual periods beginning on or after 1 January 2008. The interpretation applies to contractual
arrangements whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for public sector
services, for example, under PFI contracts. IFRIC 12 is not relevant to the Group’s operations.
IFRIC 13, ‘Customer loyalty programmes’ applies to annual periods beginning on or after 1 July 2008. This interpretation provides guidance on how entities
providing loyalty awards to customers should account for such programmes. IFRIC 13 is not relevant to the Group’s operations.
IFRIC 15, ‘Agreements for construction of real estates’ (effective from 1 January 2009). The interpretation clarifies whether IAS 18, ‘Revenue’, or IAS 11, ‘Construction
contracts’, should be applied to particular transactions. It is likely to result in IAS 18 being applied to a wider range of transactions. IFRIC 15 is not relevant to the
group’s operations.
IFRIC 16, ‘Hedges of a net investment in a foreign operation’ (effective from 1 October 2008). The amendment to the interpretation is still subject to endorsement
by the European Union. IFRIC 16 clarifies the accounting treatment in respect of net investment hedging. This includes the fact that net investment hedging relates
to differences in functional currency not presentation currency, and hedging instruments may be held anywhere in the group. It is not expected to have a
material impact on the group‘s financial statements.
IFRIC 17, ‘Distributions of Non-cash assets to Owners’ (effective from 1 July 2009). The interpretation will standardise the accounting treatment of distributions of
non-cash assets to owners. IFRIC 17 is not relevant to the Group’s operations.
2.3 Basis of consolidation
Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Group (directly or indirectly) has the power to govern the financial and operating
policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are excluded from the consolidation from the date on which control ceases.
The Group uses the purchase method of accounting to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the
assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable
assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets
acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised
directly in the income statement for the period (see Note 2.8).
Intra-group transactions, balances and unrealised gains on intra-group transactions are eliminated. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Subsidiaries’ accounting policies have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Transactions and Minority Interests
The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result
in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between
any consideration paid and the relevant share acquired of the carrying value of the net assets of the subsidiary.
Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of
the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group’s
investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (see Note 2.8).
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