12. Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

13. Borrowing Costs
Borrowing costs are written off to the income statement as incurred, unless they relate to borrowings which fund significant capital projects, in which case they are capitalised with the relevant fixed asset up to the date of commissioning, and written off to the income statement over the period during which the asset is depreciated. Borrowing costs include interest charged, commitment fees, guarantee premium and exchange differences on foreign loans to the extent that they are regarded as an adjustment to interest costs.

14. Taxation
Taxes on income are accounted for using the liability method. Under this method the expected effect of temporary differences between the figures used for financial reporting and income tax reporting purposes are recorded as deferred taxes at the rates that are expected to apply when the temporary differences reverse.

Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred income tax.

Under this method the Group is required to make provision for deferred income taxes on revaluations, if any, of non-current assets and, in relation to an acquisition, on the difference between the fair values of the net assets acquired and their tax base. Provision for taxes, mainly withholding taxes, which could arise on the remittance of retained earnings, principally relating to subsidiaries, is only made where there is a current intention to remit such earnings.

The principal temporary differences arise from depreciation on property, plant & equipment, revaluations of certain non-current assets, provisions for pensions and other post-retirement benefits and tax losses carried forward. Deferred tax assets relating to the carry forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.

15. Defined Benefit Plan
SLTL operates an approved pension fund for the payment of pensions and monthly contributions are made to the pension fund based on a percentage of the gross emoluments excluding certain allowances. The percentage of contributions was determined by an independent actuary and retirement benefits are provided for all members of the permanent staff.

SLTL as a matter of policy obtains actuarial valuation of the pension fund once in three years.

An actuarial valuation was carried out by an independent professional valuer to ascertain the full liability arising in terms of the Payment of Gratuity Act, No. 12 of 1983, in respect of all employees of SLTL as at 31 December 1998. The valuation was made adopting the Projected Unit Credit Method as recommended by the Sri Lanka Accounting Standard No. 16, Retirement Benefit Costs.

The assumptions based on which the results of the actuarial valuation was determined, include the rate of interest for discounting future cash flows, rate of salary increases, mortality, withdrawal and disability and retirement age.

The liability is not funded externally.

16. Defined Contribution Plan
All employees of SLTL are members of the Employees’ Provident Fund and the Employees’ Trust Fund to which SLTL contributes 15% and 3% respectively of such employees’ basic salary and cost of living allowance.

17. Revenue Recognition
Revenue, comprises the value of services provided and equipment sales.

Revenues for all services are recognised when earned. Billings for local telephone services were made on a monthly basis during the year ended 31 December 1999. Unbilled revenue is estimated and included in the financial statements.

Revenues are received from the customers and other network operators, for the use of its network and completing connections. A proportion of the revenue received is paid to other foreign operators for the use of their networks, where appropriate. These revenues and costs are stated gross in these financial statements. Amounts due to and receivable from the same operators are shown net, where a right of set-off exists.