british american tobacco p.l.c. annual report 2008 - Notes on the accounts

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1 Accounting policies

Basis of accounting

The Parent Company financial statements have been prepared on the going concern basis under the historical cost convention except as described in the accounting policy below on financial instruments and in accordance with the Companies Act 1985/2006 and UK Generally Accepted Accounting Principles.

The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the UK.

Cash flow statement

The cash flows of the Company are included in the consolidated cash flow statement of British American Tobacco p.l.c. which is included in this Annual Report. Consequently, the Company is exempt under the terms of FRS1 (Revised) from publishing a cash flow statement.

Foreign currencies

Transactions arising in currencies other than sterling are translated at the rate of exchange ruling on the date of the transaction. Assets and liabilities expressed in currencies other than sterling are translated at rates of exchange ruling at the end of the financial year. All exchange differences are taken to the profit and loss account in the year.

Accounting for income

Income is included in the profit and loss account when all contractual or other applicable conditions for recognition have been met. Provisions are made for bad and doubtful debts, as appropriate.

Taxation

Taxation provided is that chargeable on the profits of the period, together with deferred taxation. Deferred taxation is provided in full on timing differences between the recognition of gains and losses in the financial statements and their recognition in tax computations. However, the Company does not discount deferred tax assets and liabilities.

Fixed asset investments

Fixed asset investments are stated at cost, together with subsequent capital contributions, less provisions for any impairment in value.

Dividends

Final dividend distributions to the Company’s shareholders are recognised as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders, while interim dividend distributions are recognised in the period in which the dividends are declared and paid.

Repurchase of share capital

When share capital is repurchased the amount of consideration paid, including directly attributable costs, is recognised as a deduction from equity. Repurchased shares which are not cancelled, or shares purchased for the employee share ownership trusts, are classified as treasury shares and presented as a deduction from total equity.

Related parties

The Company has taken advantage of the exemption under paragraph 3(b) FRS8 from disclosing transactions with related parties that are part of the British American Tobacco p.l.c. Group.

Financial instruments

The financial instrument disclosures of the Company are included in the Group financial statements which are included in this Annual Report. Consequently, the Company is exempt under paragraph 3C (b) of FRS25 and 2D(b) of FRS29 from publishing these financial instrument disclosures.

Financial guarantees are recorded at fair value less accumulated amortisation.

2 Investments in group companies

The Company’s directly owned subsidiaries are British American Tobacco (1998) Limited, B.A.T. International Finance p.l.c., B.A.T Capital Corporation, BATMark Limited, British American Ventures Limited and British American Tobacco QUEST Limited.

The Directors are of the opinion that the individual investments in the subsidiary undertakings have a value not less than the amount at which they are shown in the Balance sheet.

On 10 February 2009, the Company purchased 230,000,000 £1 shares in B.A.T. International Finance p.l.c. for a consideration of £230 million.

3 Debtors

Included in debtors are amounts of £69 million (2007: £95 million) falling due after 1 year.

4 Shareholders' funds

Dividends paid are recognised in the year in which they are declared, and dividends received are recognised in the year in which they are received. The final dividend which has been declared for the year ended 31 December 2008 is shown in note 8 to the Group financial statements and will be recognised in the financial statements for the year ended 31 December 2009.

As permitted by Section 230 of the Companies Act 1985, the profit and loss of the Company has not been presented in these financial statements. The profit for the year ended 31 December 2008 was £2,033 million (2007: £3,517 million).

Details of Directors’ remuneration, share options and retirement benefits are given in the Remuneration report. Details of key management compensation are included in note 29 of the Group financial statements.

Shareholders’ funds are stated after deducting the cost of treasury shares which include £523 million (2007: £123 million) for shares repurchased and not cancelled and £218 million (2007: £171 million) in respect of the cost of own shares held in employee share ownership trusts.

Transaction costs deducted from equity for the year ended 31 December 2008 were £3 million (2007: £5 million).

Share premium

The increase of £3 million relates solely to ordinary shares issued under the Company’s share option schemes. These schemes are described in the Remuneration report.

5 Creditors

Included in creditors are amounts of £114 million (2007: £108 million) falling due after more than 1 year.

Loans due to Group undertakings are unsecured and bear interest at rates between 4.96 per cent and 7.23 per cent.

6 Audit fees

7 Contingent liabilities and financial commitments

British American Tobacco p.l.c. has guaranteed borrowings by subsidiary undertakings of £11,296 million (2007: £6,383 million) and total borrowing facilities of £18,240 million (2007: £15,905 million).

Performance guarantees given to third parties in respect of Group companies were £1 million (2007: £1 million).

There are contingent liabilities in respect of litigation in various countries (note 30 to the Group financial statements).