Significant Accounting Policies continued
Applicable to the Consolidated Financial Statements for the year ended 31 December 2007
Certain re-measurement items
Items that represent re-measurement of underlying assets or liabilities
(for example due to interest rate or exchange rate changes) are presented as
certain re-measurement items. Events which may give rise to the classification
of gains and losses as certain re-measurement items include the following:
a) recognised fair value gains and losses on derivatives in accordance with
the financial instruments and hedge accounting policy below;
b) exchange gains and losses arising upon the translation of foreign currency
borrowings at the closing rate; and
c) actuarial gains and losses arising on defined benefit retirement benefit
schemes.
Economic hedge adjustments
Under IAS 39, the Group applies hedge accounting to hedge relationships
(primarily forward exchange contracts, cross currency interest rate swaps and
interest rate swaps) where it is both permissible and practicable to do so. Due to
the nature of its economic hedging relationships, in a number of circumstances
the Group is unable to apply hedge accounting to these derivatives. The Group
continues, however, to enter into these arrangements as they provide certainty
of the exchange rates applying to the foreign currency transactions entered into
by the Group and the interest rate on the Group's debt. These arrangements
result in fixed and determined cash flows. The Group believes that these
arrangements remain effective as economic hedges, and therefore adjustment
is made to reported profit measures such that the underlying profit reflects full application of hedge accounting.
Functional currency
The functional currency of the Company is sterling. However, as a significant proportion of the Group's revenues, costs, assets and funding arise in euro, the Consolidated Financial Statements of the Group are presented in euro.
Basis of consolidation
The Consolidated Financial Statements comprise a consolidation of the accounts of the Company and its subsidiary undertakings.
The accounting reference dates of certain of the Group's subsidiary undertakings and its associated undertaking are governed by local requirements and are not coterminous with the Group's 31 December year end. For those companies with non-coterminous year ends, management accounts for the relevant period to 31 December have been consolidated. The main subsidiary undertaking with such a non-coterminous year end is Avis Autonoleggio SpA (30 June). In the opinion of the Directors, the expense of providing additional coterminous statutory accounts, together with potential consequential delay in producing the Group's Consolidated Financial Statements, would outweigh any benefit to the shareholders.
Subsidiary undertakings
Subsidiary undertakings are those entities in which the Group has, directly or
indirectly, an interest of more than half of the voting rights or otherwise has the
power to exercise control over the operations. Subsidiaries are consolidated
from the date that control is transferred to the Group and are no longer
consolidated from the date that control ceases. Subsidiaries are accounted
for using the acquisition method of accounting. All inter-company transactions,
balances and unrealised gains on transactions between Group companies are
eliminated upon consolidation.
Minority interests
The amount of profits or losses for a reporting period allocated to minority
interests is adjusted (and separately disclosed in the Income Statement) against
income of the Group for the year.
Joint ventures
A joint venture is a contractual arrangement whereby the Group and one or
more parties undertake an economic activity that is subject to joint control. Joint
control is when the strategic, financial and operating policy decisions relating to
the activity require the unanimous consent of the parties sharing control.
Interests in joint ventures are recognised using the equity method. Unrealised gains and losses on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in the joint ventures. The Group's investment in joint ventures includes goodwill on acquisition. The Group's share of profit from joint ventures represents the Group's share of the joint venture's profit after tax. If the Group's share of losses in a joint venture equals or exceeds its investment in the joint venture, the Group does not recognise further losses unless it has incurred obligations or made payments on behalf of the joint venture.
Associate undertakings
Investments in the associate undertaking are accounted for using the equity
method and are initially recognised at cost. This is an undertaking over which the
Group has significant influence but not control, generally accompanied by a share
of between 20% and 50% of the voting rights. The Group's share of profit from
the associate represents the Group's share of the associate's profit after tax.
Segment reporting
The Group's primary reporting format is business segments and its secondary format is geographical segments. A business segment is a component of the Group that is engaged in providing a group of related products and services, and is subject to risks and returns that are different from those other business segments. A geographical segment is a component of the Group that operates within a particular economic environment and this is subject to risks and returns that are different from those of components operating in other economic environments.
Revenue
Revenue includes vehicle rental income, fees from the provision of services incidental to vehicle rental (such as the sale of fuel, sub-licensee income and the provision of foreign exchange services to rental customers), fees receivable from licensees, net of discounts and excludes inter-company sales, value added and sales taxes.
When the outcome of a transaction involving the rendering of services (including
the provision of licence rights) can be estimated reliably, revenue associated
with the transaction is recognised by reference to the stage of completion of
the transaction at the balance sheet date. The outcome of a transaction can
be estimated reliably when all the following conditions are satisfied :
a) the amount of revenue can be measured reliably;
b) it is probable that the economic benefits associated with the transaction will
flow to the Group;
c) the stage of completion of the transaction at the balance sheet date can be
measured reliably; and
d) the cost incurred for the transaction and the costs to complete the
transaction can be measured reliably.
Cost of sales
Cost of sales includes selling, revenue and rental related costs (eg commissions and credit card fees) and vehicle costs. Contributions to vehicle costs from suppliers are credited over the holding period of the related vehicles. Any such contributions dependent on performance criteria are recognised in the Income Statement only to the extent that it is considered probable that the criteria will be met.
