50Spire Healthcare Annual Review 2010Spire Healthcare Limited PartnershipNotes to the financial statementsFor the year ended 31 December 20101. Accounting policies continuedDepreciationNo depreciation is charged on freehold land or properties under construction. Other assets are depreciated so as to write off the carrying amounts of the assets over their expected useful lives as follows:Freehold buildings and improvements - 5-50 yearsLeasehold buildings and improvements - lower of lease term or expected lifePlant and machinery - 5-10 yearsFixtures, fittings and equipment - 3-10 yearsThe expected useful lives of property, plant and equipment are reviewed annually and revised as appropriate. The review of the asset lives of properties takes into consideration the plans of the business and levels of expenditure incurred on an ongoing basis to maintain the properties in a fit and proper state for their ongoing use as hospitals.Exceptional itemsExceptional items are those items which, in the opinion of the General Partner, by virtue of their size or incidence, either individually or in aggregate, need to be disclosed separately if the financial statements are to give a true and fair view. Borrowing costsBorrowing costs that are directly attributable to the acquisition and construction of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.All other borrowing costs are recognised as an expense in the period in which they are incurred.Interest-bearing borrowingsInterest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost on an effective interest basis.PensionsThe Group operates the Spire Healthcare Pension Plan and The London Gynaecology and Fertility Centre Pension Plan, two defined contribution schemes. The assets of the schemes are held separately from those of Spire Healthcare Limited Partnership in independently administered funds.Obligations for contributions to defined contribution pension schemes are recognised as an expense in the income statement as incurred.Employee benefitsShort-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short-term cash bonuses if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.ProvisionsA provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected, risk adjusted, future cash flows at a pre-tax risk-free rate.

51Spire Healthcare Limited PartnershipLeasesLeasing arrangements that transfer to the Group substantially all the risks and rewards of ownership of an asset are treated as if the asset had been purchased outright. The assets are included in tangible assets and depreciated over their estimated economic lives or over the term of the lease, whichever is the shorter. The capital element of the leasing commitments is included in liabilities as obligations under finance leases. The lease rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligation and the interest element is charged to the income statement in proportion to the capital element outstanding.Operating lease payments are recognised as an expense on a straight-line basis over the lease term.Taxation including deferred taxationIncome tax on the result for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised directly in equity.Current tax is the expected tax payable on the taxable result for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years.Deferred tax is recognised in full using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not recognised: goodwill not deductible for tax purposes and the initial recognition of an asset or liability in a transaction that is not a business combination and which, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss.The amount of deferred tax recognised is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.Deferred tax is recognised on temporary differences arising on investments in subsidiary companies, 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.A deferred tax asset is only recognised to the extent that it is probable that future taxable profits will be available against which the asset can be used.Derivative financial instrumentsThe Group has entered into various derivative financial instrument arrangements to manage its exposure to interest rate risk.Derivatives are initially recognised at fair value at the date a derivative contract is entered into and subsequently remeasured to their fair value at each balance sheet date.Hedge accountingThe Group applies cash flow hedge accounting. The Group formally documents the hedging relationship between a hedging instrument and a hedged item. Documentation includes the risk management objectives and the strategy in undertaking the hedge transaction.Cash flow hedgesThe effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.Amounts deferred in equity are recycled in the income statement in the periods when the hedged item is recognised, in the same line of the income statement as the recognised hedged item.