For the year ended 31 December 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1 Accounting policies and presentation continued Presentation of the income statement continued
• profits or losses arising from business combinations including fair value adjustments to pre-combination shareholdings, changes in estimates of contingent consideration made after the provisional fair value period and material expenses and charges incurred on a business combination • significant pension scheme curtailments and settlements. The Group’s post-tax share of equity accounted investment earnings is shown as a separate component of profit before tax. The Group’s share of material restructuring and impairment charges, amortisation of the fair value of non-operating intangible assets arising on business combinations and other net financing charges and their related taxation are separately identified, in the related note. Net financing costs are analysed to show separately interest payable, interest receivable and other net financing charges. Other net financing charges include the interest charge on net defined benefit plans, specific changes in fair value on net investment hedges and unwind of discounts on fair value amounts established on business combinations.
these relate to services performed up to the reporting date; achievement of contractual milestones where appropriate; or flying hours or equivalent for long-term aftermarket arrangements. In most RRSP contracts there are two separate phases where the Group earns revenue; sale of products principally to engine manufacturers and aftermarket support. Due to the nature of the industry, the sale of products to engine manufacturers can be deeply discounted with more favourable pricing in the aftermarket phase. The Group accounts for the sale of product in early phases of contracts distinct from the sale of product/service in the aftermarket phase. This generally has the effect of lower margins recognised during the early phase of contracts with higher margins earned during the aftermarket phase. The Group does not believe that margin should be spread evenly over the two distinct phases of RRSP contracts or that accounting losses should be deferred, because it does not consider there is sufficient contractual certainty over the future revenue, should programme volumes not materialise.
Design and build
Revenue recognition Sales
Revenue from the sale of goods is measured at the fair value of the consideration receivable which generally equates to the invoiced amount, excluding sales taxes and net of allowances for returns, early settlement discounts and rebates. The Group has three principal revenue streams:
Sales of product
This revenue stream accounts for the overwhelming majority of Group sales. Contracts in the Automotive and Land Systems segments operate almost exclusively on this basis, and it also covers a high proportion of Aerospace revenues. Invoices for goods are raised when the risks and rewards of ownership have passed which, dependent upon contractual terms, may be at the point of despatch, acceptance by the customer or, in Aerospace, certification by the customer. Many businesses in GKN Automotive and GKN Land Systems recognise an element of revenue via a surcharge or similar raw material cost recovery mechanism. The surcharge invoiced or credited is generally based on prior period movement in raw material price indices applied to current period deliveries. Other cost recoveries are recorded according to the customer agreement. In those instances where recovery of such increases is guaranteed, irrespective of the level of future deliveries, revenue is recognised, or due allowance made, in the same period as the cost movement takes place.