Notes to the Financial Statements
1 Statement of Accounting Policies
The principal accounting policies are
summarised below, which have all been
applied consistently throughout the year and
the preceding year.
(a) Basis of Accounting
The accounts have been prepared under the
historical cost convention and in accordance
with applicable United Kingdom accounting
standards. In order to show a true and fair
view, the Company has departed from the
requirements of the Companies Act 2006
in respect of merger accounting for group
reconstructions and in respect of accounting
for capital contributions. Further details are
provided in (b) and (g) below respectively.
The Directors have considered the
assumptions for preparing the accounts on a
going concern basis. These are set out in the
Corporate Governance report.
(b) Basis of Consolidation
The Group accounts consolidate the
accounts of the Company and its subsidiary
undertakings made up to 31 March each year.
In accordance with Financial Reporting
Standard Number 6, certain group
reorganisations which took place in previous
years have been accounted for using merger
accounting principles, in order to meet the
overriding requirement under section 393
of the Companies Act 2006 for financial
statements to present a true and fair view.
The transactions accounted for using these
principles did not meet all of the conditions
for merger accounting under the Companies
Act 2006, namely that the fair value of any
non-equity consideration must not exceed
10 per cent of the nominal value of equity
shares issued as consideration. However,
the Directors consider that in substance
the consideration for these transactions
comprised equity share capital with no
net cash impact and that the alternative
approach of acquisition accounting, with the
restatement of separable assets and liabilities
to fair values, the creation of goodwill, and
the inclusion of post reorganisation results
only would not give a true and fair view of
the Group's results and financial position. The
substance of the transactions was not the
acquisition of businesses but rather a group
reconstruction under which the ultimate
shareholders of the businesses transferred
and their rights relative to the others
remained unchanged. The Directors consider
that it is not practicable to quantify the effect
of this departure from the Companies Act
2006 requirements.
Other business combinations have been
accounted for under the acquisition method.
(c) Turnover
South Staffs Water turnover includes amounts
billed together with an estimation of amounts
for water supply services provided but
remaining unbilled at the year-end.
Software licence income is recognised within
turnover once software implementation and
customer acceptance are complete unless
there is an agreement to pay a rental charge
for the product, in which case, turnover is
recognised based on the value of the rental
charge each month. Income from separate
software maintenance contracts is recognised
evenly over the contract period to which
it relates. Income generated through the
performance of software development and
consultancy services is included within
turnover on the basis that turnover is
matc hed with the delivery of the service.
Contract accounting is applied to certain
contracts the Group is a party to. Where the
outcome of the contract can be assessed
with reasonable certainty, attributable
turnover and profit are calculated on an
appropriate and prudent basis and included
in the accounts for the period under review.
Where a contract loss is anticipated, the entire
anticipated loss is recognised immediately.
Turnover of other non-regulated activities
represents amounts receivable excluding VAT,
from the sale of goods and services.
(d) Dividends
Dividends are recognised if they have been
paid or if they have been approved by the
shareholders before the year-end.
(e) Goodwill
Goodwill arising on acquisitions represents
the excess of the fair value of the
consideration given over the fair value of the
identifiable assets and liabilities acquired.
Goodwill is amortised over its estimated
useful life of 10 to 20 years.
(f ) Tangible Fixed Assets and Depreciation
Tangible fixed assets comprise infrastructure
assets (including water mains, impounding
and pumped raw water storage reservoirs
and dams), specialist operational assets
(including pumping stations, treatment
stations, boreholes and service reservoirs),
land and buildings and other assets including
fixed plant and equipment.
Infrastructure Assets
Infrastructure assets comprise networks of
systems that, as a whole, are intended to be
maintained in perpetuity at a specified level
of service by the continuing replacement
and refurbishment of their components.
Expenditure on infrastructure assets relating to
increases in capacity or enhancements of the
networks and on maintaining the operating
capability of the networks in accordance with
defined standards of service are treated as
additions which are included at cost.
The depreciation charge for infrastructure
assets is the level of annual expenditure
required to maintain the operating capability
of the network which is based on the relevant
company’s independently certified asset
management plan.
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