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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
2.11 Trade receivables
The trade receivables are recognised initially at cost and subsequently carried at cost less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows. The carrying amount of the asset is reduced through the use of an allowance account. Once decided as irrecoverable after due recovery procedures, the amount of the loss is recognised as an ‘operating costs’ in the income statement. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against 'operating costs' in the income statement.
2.12 Cash and cash equivalents
The cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less, net of bank overdrafts. The bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
2.13 Stated capital
The ordinary shares are classified as equity.
2.14 Insurance reserve
The Company transfers annually from the income statement an amount equal to 0.1% of additions to property, plant & equipment to an insurance reserve. An equal amount is invested in a sinking fund to meet any funding requirements for potential losses from uninsured property, plant & equipment. The insurance reserve is maintained to recover any losses arising from damage to property, plant & equipment, except for motor vehicles, that are not insured with a third party insurer.
2.15 Trade payables
The trade payables are recognised at fair value.
2.16 Borrowings
The borrowings are recognised initially at fair value, net of transaction costs incurred. The borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
The borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
2.17 Leases
A lease is an agreement whereby the lessor conveys to the lessee in return for a payment, or series of payments, the right to use an asset for an agreed period of time.
(a) Finance lease
The Group leases certain motor vehicles included in property, plant & equipment. The leases where the Group has substantially all the risks and rewards are classified as finance leases. The finance leases are capitalised, at the lessees commencement at the lower of the fair value of the leased assets and present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance lease balance outstanding. The corresponding rental obligations, net of finance charges, are included in long-term payables. The interest element of the finance lease is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The plant & equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset or the lease term.
(b) Operating lease
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. The payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
2.18 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised directly in equity. In this case, the tax is also recognised in equity.
The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted at the balance sheet date in the countries where the Company and its subsidiaries generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than in a business combination, that at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising from investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
2.19 Employee benefits
The Group has both defined benefit and defined contribution plans.
(a) Defined contribution plan
All employees of the Company are members of the Sri Lanka Telecom Provident Fund and the Employees’ Trust Fund (ETF) to which the Company contributes 15% and 3% respectively of such employees’ basic salary and allowances. All employees of subsidiaries of the Group except for Sri Lanka Telecom Hong Kong Limited are members of Employees' Provident Fund (EPF) and Employees' Trust Fund (ETF), to which respective subsidiaries contribute 12% and 3% respectively, of such employees' basic salary
and allowances.
The Company has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expenses when they are due.
(b) Defined benefit plan
Typically, a defined benefit plan defines an amount of benefit that an employee will receive on retirement, which is, usually a dependent on one or more factors such as period of service and compensation.
The liability recognised in the balance sheet in respect of defined benefit plans is the present value of the defined benefit obligation at the balance sheet date together with adjustments for unrecognised gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of defined benefit obligation is determined by discounting the estimated future cash outflows using estimated long-term interest rates.
The actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to income statement in the period in which they arise.
The assumptions, based on which the results of the actuarial valuation were determined, are included in Note 26 to the Consolidated financial statements.
2.20 Provisions
A provision is 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 will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligation may be small.
The provision is measured at the present value of the expenditures expected to be required to settle the obligation.
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