Carphone Warehouse 2006 Annual Report Download - page 73

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Notes to the Company Financial Statements
The Company has applied the requirements of FRS20 ‘Share-based
Payment’, which in accordance with the transitional provisions has been
applied to all grants of equity instruments after 7 November 2002.
Dividends
Dividends receivable from the Company’s subsidiaries are recognised only
when they are approved by shareholders.
Final dividend distributions to the Company’s shareholders are recognised as
a liability in the financial statements in the period in which they are approved
by the Company’s shareholders. Interim dividends are recognised in the
period in which they are paid.
Foreign exchange
Material transactions in foreign currencies are hedged using forward purchases
or sales of the relevant currencies and are recognised in the financial statements
at the exchange rates thus obtained. Unhedged transactions are recorded
at the exchange rate on the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are hedged, mainly using forward
foreign exchange contracts to create matching liabilities and assets.
Financial instruments
The Company uses forward currency contracts to reduce its exposure to
exchange rate fluctuations. From 3 April 2005, such contracts are measured
at their fair value based on contracted exchange rates. Changes in fair value
are recognised in the income statement.
1 Accounting policies
Basis of preparation
The financial statements have been prepared in accordance with applicable
United Kingdom accounting standards under the historical cost convention,
as modified by FRS26 ‘Financial Instruments: Measurement’ as detailed below.
The following principal accounting policies have been applied consistently
throughout the period and the preceding period, except as required by
accounting standards that came into force in the current financial period,
which are as follows:
FRS20 ‘Share-based Payment’
Requires that the fair value of options granted, defined at the date of grant,
is recognised in the profit and loss account over the vesting period
(see Share-based payments below).
FRS21 ‘Events After The Balance Sheet Date’
Requires that dividends proposed but not yet authorised are not recognised
as assets or liabilities in the financial statements.
FRS26 ‘Financial Instruments: Measurement’
Requires third-party investments to be recorded at fair value rather than cost.
During the period the Company also adopted FRS23 ‘The Effects of
Changes in Foreign Exchange Rates’, FRS25 ‘Financial Instruments:
Disclosure and Presentation’, and FRS28 ‘Corresponding Amounts’.
The adoption of these standards has not had a significant impact
on the Company’s financial statements.
Investments
All investments are initially recognised at cost, being the fair value of the
consideration given and including acquisition charges associated with
the investment.
The Company adopted FRS26 from 3 April 2005, as a result of which its
third-party investments are categorised as available-for-sale and recorded
at fair value from this date.
Changes in fair value, together with any related deferred tax, are taken
directly to reserves, and recycled to the profit and loss account when the
investment is sold or is determined to be impaired.
Share-based payments
The Company issues equity settled share-based payments to certain
employees. Equity settled share-based payments are measured at fair value
at the date of grant, and expensed over the vesting period, based on the
Company’s estimate of the number of shares that will eventually vest.
Fair value is measured by use of a Binomial model for share-based payments
with internal performance criteria (such as Earnings Per Share targets) and
a Monte Carlo model for those with external performance criteria (such as
Total Shareholder Return targets).
For schemes with internal performance criteria, the number of options expected
to vest is recalculated at each balance sheet date, based on expectations of
performance against target and of leavers prior to vesting. The movement in
cumulative expense since the previous balance sheet is recognised in the profit
and loss account, with a corresponding entry in reserves.
For schemes with external performance criteria, the number of options
expected to vest is adjusted only for expectations of leavers prior to vesting.
The movement in cumulative expense since the previous balance sheet
is recognised in the profit and loss account, with a corresponding entry
in reserves.
www.cpwplc.com 69
Financial Statements