STATEMENT OF ACCOUNTING POLICIES
Year ended 31 December 2009
Basis of Accounting and Preparation of Financial Statements
The financial statements are prepared in euro, under the historical cost convention and in accordance with Generally Accepted Accounting Practice in Ireland. The policies set out below have been consistently applied to all years presented in these consolidated financial statements and have been applied consistently by Group entities.
In preparing the financial statements, estimates and assumptions are made that affect the reported amounts included in the profit and loss account for the year and assets and liabilities included in the balance sheet. Actual results could differ from those estimates. Estimates are used principally when accounting for unbilled revenue, pension costs, depreciation and provisions required in respect of doubtful debts and liabilities.
Basis of Consolidation
The consolidated financial statements comprise the financial statements of Bord Gáis Éireann and all of its subsidiaries (as listed in note 31), together with the Group’s share of the results and net assets or liabilities of its joint ventures made up to 31 December in each year.
The results of subsidiary undertakings acquired or sold are included in the consolidated profit and loss account and cashflow statement up to or from the date control passes.
Joint venture undertakings (joint ventures) are those undertakings over which Bord Gáis Éireann exercises control jointly with one or more parties. The Group’s share of profits less losses of joint ventures is included in the consolidated profit and loss account. The Group’s interest in their net assets/liabilities is included as a financial asset in the consolidated balance sheet at an amount representing the fair value of the Group’s share of net assets at acquisition plus the Group’s share of post acquisition retained profits or losses.
Intangible Fixed Assets and Amortisation
Goodwill
Goodwill is the excess of the consideration paid on the acquisition of a business over the fair value of the identifiable assets and liabilities acquired. Goodwill is capitalised, classified as an asset on the balance sheet and amortised on a straight-line basis over its useful economic life which does not exceed 20 years. Goodwill is reviewed for impairment at the end of the first full financial year following acquisition and in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable.
Research and Development
Expenditure is charged to the profit and loss account as incurred with the exception of certain development expenditure which is capitalised within intangible fixed assets as outlined below.
Wind Farm Developments
Development costs which relate to specific wind farm projects where the future recoverability can be foreseen with reasonable assurance are capitalised within intangible fixed assets. Development costs represent the costs incurred in bringing individual projects to consented stage. At the point the projects are approved for construction, the carrying value is transferred to tangible fixed assets as part of projects in progress.
Provision is made for any impairment identified.
Revenue Recognition
Revenue from gas commodity sales, gas transportation, gas connections, gas appliance sales and servicing, electricity sales, steam sales in the case of the Bord Gáis Éireann’s CHP business and other sundry sales is recognised as income in the financial statements on the accruals basis under Turnover, exclusive of value added tax and intra-Group transactions.
Turnover includes an estimate of the value of gas and electricity supplied to customers between the date of the last meter reading and the year end. This estimate is included in debtors in the balance sheet as unbilled consumption.
Gas and electricity revenue is recognised on consumption of the product. Transportation capacity revenue is recognised in line with the underlying contract while any related commodity revenue is recognised based on throughput for the period for each customer.
A number of Bord Gáis Éireann’s sources of revenue are dependent on being approved by the industry regulator, the Commission for Energy Regulation. Certain circumstances may result in the regulatory “allowed” revenue being over or under recovered in the financial year. Any over or under recovery may be included, within certain parameters, in the calculation of the following years’ regulatory revenue. No adjustment is made for over or under recoveries in the year that they arise.
Pension Costs
Bord Gáis Éireann has both defined benefit and contribution pension arrangements. Each of the defined benefit pension scheme assets are measured using fair values; pension scheme liabilities are measured using the projected unit method and discounted at the rate of return of a high quality corporate bond of a comparable duration to the benefit flows. Pension schemes’ surpluses, to the extent that they are considered recoverable, or deficits are recognised in full and presented on the face of the balance sheet net of related deferred tax.
The current service cost and gains and losses on settlements and curtailments are charged to operating profit or provisions as appropriate. The interest cost and the expected return on assets are included as other finance expenses / income. Actuarial gains and losses are recognised in the statement of total recognised gains and losses in the period in which they occur. The contributions payable by Bord Gáis Éireann under the defined contribution schemes are charged to the profit and loss account in the period in which they become payable.
Foreign Currencies
Transactions in foreign currencies are recorded at the rate ruling at the date of the transactions or at a contracted rate. Monetary assets and liabilities denominated in foreign currencies have been translated into euro at rates ruling at the balance sheet date or by reference to forward contracts if the transaction is covered by a forward foreign currency contract. Profits and losses arising on translation are taken to the profit and loss account.
The financial statements of foreign subsidiaries are translated into euro using the closing rate method. Profits and losses arising on the re-translation of foreign subsidiaries are taken to reserves and recognised in the statement of total recognised gains and losses. Differences on foreign currency borrowings, to the extent that they are used to finance or provide a hedge against Bord Gáis Éireann’s equity investment in foreign subsidiaries, are also taken to reserves and recognised in the statement of total recognised gains and losses.
Tangible Fixed Assets
Tangible fixed assets are stated at historical cost less accumulated depreciation and provision for impairment of value thereon, net of customer contributions where applicable. Cost includes direct costs (including direct labour), overheads and interest incurred in financing the construction of tangible fixed assets. Capitalisation of interest ceases when the asset is commissioned or where active development has been interrupted for an extended period.
The charge for depreciation is calculated to write down the cost of tangible fixed assets, less estimated residual value, based on prices prevailing at the date of acquisition of each asset, over their expected useful lives. Major asset classifications and their depreciation rates are:
| Land | 0% |
| Power Generating Assets | 5% |
| Buildings | 2.0% - 3.0% |
| Pipeline Systems | 1.7% - 6.7% |
| Plant, Vehicles & Equipment | 6.7% - 33.3% |
Depreciation is provided on a straight-line basis.
The carrying value of tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.
Projects in progress represent the cost of purchasing, constructing and installing tangible fixed assets ahead of their productive use. No depreciation is charged on projects in progress.
Replacement Expenditure
Replacement expenditure represents the cost of planned maintenance of Bord Gáis Éireann’s pipeline systems. This expenditure is primarily undertaken to repair and maintain the safety of the network and is written off as incurred. Expenditure that results in increased capacity or extends the useful economic life of an asset is capitalised within tangible fixed assets.
Investments
Investments are included in the balance sheet at cost, less any provisions for impairment.
Leased Assets
The capital cost of assets acquired under finance leases are included under tangible assets and written off over the shorter of the lease term or the estimated useful life of the asset. The capital elements of future obligations are included as liabilities in the balance sheet. Interest on the remaining lease obligation is charged to the profit and loss account over the period of the lease. This charge is calculated so as to produce a constant periodic rate of charge on the remaining balance of the obligation for each accounting period. Operating lease rentals are charged to the profit and loss account on a straight-line basis over the lease term.
Pre-Contract Costs
Costs of planning, bidding for and securing commercial contracts to supply products and services are recognised as expenses as incurred. Directly attributable costs are capitalised as assets when there is virtual certainty that a contract will be obtained and the contract is expected to result in future net cash inflows, with a present value no less than all amounts recognised as an asset.
Capital Grants
Capital grants received in respect of the purchase of tangible fixed assets are treated as a deferred credit and amortised to the profit and loss account annually over the useful economic life of the related asset.
Stocks
Stocks are valued at the lower of cost and net realisable value. Cost comprises invoice price plus freight and duty where appropriate. Net realisable value is the actual or estimated selling price less all costs to be incurred prior to disposal.
Provision is made for damaged, deteriorated, obsolete and unusable items where appropriate.
Financial Instruments
Financial instruments include borrowings, cash deposits, forward contracts, currency and interest rate swaps.
Bord Gáis Éireann is exposed to foreign exchange translation risk arising from assets and liabilities of its UK subsidiaries, denominated in sterling. Hedging is achieved by using borrowings in the same currency as the assets being hedged or through the use of other hedging methods such as currency swaps.
Derivatives, principally interest and currency swaps and forward foreign exchange contracts, are used to manage interest rate risk and currency risk. Interest differentials arising on these derivatives are recognised in net interest expense over the period of the related contract. Where derivatives are used to hedge cross currency cash flows arising from trading and financing activities, the underlying transaction is recorded at the contract rate.
Interest-bearing Loans and Borrowings
Interest-bearing loans and borrowings are initially recognised net of arrangement fees. These arrangement fees are amortised over the life of the related borrowing. Accrued finance costs, to the extent they are payable within one year, are included in accruals rather than in the carrying amount of debt.
Finance costs are allocated over the term of debt at a constant rate on the carrying amount.
Provisions for Liabilities
Provisions are recognised when Bord Gáis Éireann has a legal or constructive obligation as a result of a past event, a reliable estimate of that obligation can be made and it is probable that an outflow of economic benefits will be required to settle the obligation.
Where the effect of the time value of money is material, provisions are recognised at a discounted rate. The discount rate is based on a risk-free rate and the financing charge is included in the profit and loss account and added to the provision each year.
Deferred and Current Taxation
Current tax is provided at amounts expected to be paid (or recovered) under current tax legislation.
Deferred tax is recognised in respect of all timing differences which relate to transactions or events that have originated but not reversed at the balance sheet date. Timing differences are differences between Bord Gáis Éireann’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.
A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits in the foreseeable future from which the reversal of the underlying timing differences can be deducted.
Deferred tax is measured, on an undiscounted basis, at the tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Commodity Contracts
Bord Gáis Éireann enters into contracts for the purchase of gas at fixed prices and also enters into contracts for the purchase of electricity. Given the pool arrangements that have been put in place by the Single Electricity Market, Bord Gáis Éireann enters into Contracts for Difference (CfDs) and other hedge arrangements. Costs of such contracts are recognised as the commodity is delivered, the effect of which is to fix the commodity purchase price.
Share Based Payment
Equity-settled share based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value is expensed on a straight line basis over the vesting period, based on Bord Gáis Éireann’s estimate of equity instruments that will eventually vest. At each balance sheet date, Bord Gáis Éireann revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in the profit and loss account over the remaining vesting period, with a corresponding adjustment to the Profit and Loss Account Reserve.