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Annual Report & Accounts 2007
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(ii) Net ˘nancing costs Net ˘nancing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested, dividend income, foreign exchange gains and losses. Interest income is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established. (n) Tax Income tax on the pro˘t or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for ˘nancial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable pro˘t, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is more probable than not that future taxable pro˘ts will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax bene˘t will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. (o) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. (p) Short-term deposits Short-term deposits comprise cash deposits held with highly credit rated ˘nancial institutions with original maturities of more than three months and up to one year. (q) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits held with banks. (r) Financial instruments Non-derivative ˘nancial instruments. Non-derivative ˘nancial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative ˘nancial instruments are recognised initially at fair value plus, for instruments not at fair value through pro˘t or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative ˘nancial instruments are measured as described below. Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash Łows. Accounting for ˘nance and income and expense is discussed in note m(ii). 14