19 Cash and cash equivalents

Cash equivalents mainly comprise short term deposits with an original maturity of three months or less. The carrying value of cash and cash equivalents approximates their fair value.

Cash and cash equivalents are denominated in the functional currency of the subsidiary undertaking or other currencies as shown below:

Cash and bank balances are non-interest bearing. Effective interest rates applicable to cash equivalents are as follows:

In the Group cash flow statement, net cash and cash equivalents are shown after deducting bank overdrafts, as follows:

Cash and cash equivalents include restricted amounts of £65 million (2005: £77 million).

 20 Capital and reserves - reconciliation of movement in total equity

As described in note 4, differences on exchange in 2005 have been restated by £4 million with a corresponding change in net finance costs and consequently profit for the year. The change in accounting policy had a £nil impact on the reported net finance costs and differences on exchange in 2006. The change to the translation reserve and retained earnings as at 1 January 2005 was £7 million as shown above with a consequent change of £3 million as at 31 December 2005.

Details relating to the authorised and allotted share capital, and movements therein, is included in note 3.

Share premium account, capital redemption reserves and merger reserves comprise:

The share premium account includes the difference between the value of shares issued and their nominal value. The increase of £5 million (2005: £6 million) relates solely to ordinary shares issued under the Company's share option schemes. These schemes are described in the Remuneration Report.

On the purchase of own shares as part of the buy-back programme, a transfer is made from retained earnings to the capital redemption reserve equivalent to the nominal value of shares purchased. As described in note 3, a technical infringement of the Companies Act 1985 occurred, in relation to £100 million of the £500 million shares purchased under the buy-back programme in the table above, which therefore remain in share capital above and are excluded from the transfer to the capital redemption reserve.

In 1999, shares were issued for the acquisition of the Rothmans International B.V. Group and the difference between the fair value of shares issued and their nominal value was credited to merger reserves.

Movements in other reserves and retained earnings (which is after deducting treasury shares) shown above comprise:

The translation reserve is as explained in the accounting policy on foreign currencies.

The hedging reserve and the available-for-sale reserve are as explained in the accounting policy on financial instruments.

Other reserves comprise:

1. £483 million which arose in 1998 from merger accounting in a Scheme of Arrangement and Reconstruction whereby British American Tobacco p.l.c. acquired the entire share capital of B.A.T. Industries p.l.c. and the share capital of that company's principal financial services subsidiaries were distributed, so effectively demerging them; and
2. In the Rothmans transaction, convertible redeemable preference shares were issued as part of the consideration. The discount on these shares was amortised by crediting other reserves and charging retained earnings. The £90 million balance in other reserves comprises the accumulated balance in respect of the preference shares converted during 2004.