The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.

1. Basis of Preparation
The consolidated financial statements are prepared in accordance with and comply with Sri Lanka Accounting Standards. The consolidated financial statements are prepared under the historical cost convention.

2. Consolidation
Subsidiary undertakings, which are those companies in which the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations, have been consolidated. Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are no longer consolidated from the date of disposal. All intercompany transactions, balances and unrealised surpluses and deficits on transactions between group companies have been eliminated. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group. If the Company owns less than 100% of the voting rights, separate disclosure is made of minority interests.

The Group’s subsidiary is set out in note 19.

3. Investments in Associates
Investments in associated undertakings are accounted for by the equity method of accounting. These are undertakings over which the Group has between 20% and 50% of the voting rights, and over which the Group exercises significant influence, but which it does not control. Provisions are recorded for long-term impairment in value.

Equity accounting involves recognising in the income statement the Group’s share of the associates’ profit or loss for the year. The Group’s interest in the associate is carried in the balance sheet at an amount that reflects its share of the net assets of the associate.

The Group’s principal associated undertaking is shown in note 19.

4. Foreign Currencies
Foreign currency transactions in Group companies are accounted for at the exchange rates prevailing at the date of the transactions: gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. Such balances are translated at year-end exchange rates unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used. Where such gains and losses are incurred as part of operating activities, they are included in operating costs. Where they arise on foreign currency loans incurred to acquire fixed assets, they are capitalised as part of the cost of fixed assets to the extent that they are regarded as an adjustment to interest costs.

5. Investments
Fixed asset investments are shown at cost and provision is only made where, in the opinion of the Directors, there is a permanent diminution in value. Where there has been a permanent diminution in the value of an investment, it is recognised as an expense in the period in which the diminution is identified.

On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the income statement.

6. Property, Plant & Equipment
Property, plant & equipment is carried at cost less accumulated depreciation, less a provision for any permanent diminution in value.

Cost includes all costs directly attributable to bringing an asset to working condition for its intended use.

Cost in the case of the network comprises all expenditure up to and including the cabling within customers’ premises, undersea cables, contractors’ charges and payments on account, materials, customs duty and borrowing costs.