Carphone Warehouse 2008 Annual Report Download - page 60

Notes to the Financial Statements continued
48 The Carphone Warehouse Group PLC Annual Report 2008
q) Loans and other borrowings
Loans and other borrowings represent bank overdrafts, uncommitted
bank loans, committed bank loans and loan notes issued by the Group.
Bank fees and legal costs associated with the securing of external
financing are capitalised and amortised over the term of the relevant
facility. All other borrowing costs are recognised in the income statement
in the period in which they are incurred.
r) Provisions
Provisions are recognised when the Group has a 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 a reliable estimate
can be made of the amount of the obligation. Provisions are discounted
where the time value of money is considered to be material.
Provisions are categorised as follows:
Insurance:
Full provision is made for the estimated cost of all claims notified but
not settled at the balance sheet date. Provision is also made for the
estimated cost of claims incurred but not reported at the balance
sheet date, based on historic experience of the value of such claims.
Any differences between original claims provisions and subsequent
settlements are reflected in the income statement in the relevant period.
Reorganisation:
Reorganisation provisions are only recognised where plans are
demonstrably committed and where appropriate communication
to those affected has been undertaken at the balance sheet date.
Provisions are not recognised in respect of future operating losses.
Sales:
Sales provisions relate to “cash-back” and similar promotions, product
warranties, product returns, and network operator performance penalties.
The anticipated costs of these items are assessed by reference to historic
trends and any other information that is considered to be relevant.
Other:
Other provisions relate to dilapidations and similar property costs,
unresolved tax issues and legal disputes, and costs associated with
onerous contracts. All such provisions are assessed by reference
to the best available information at the balance sheet date.
s) Headline results
Headline results are stated before the amortisation of acquisition
intangibles and goodwill expense. Headline results also exclude any
one-off items that are considered to be so material that they require
separate disclosure to avoid distortion of underlying performance.
t) Use of critical accounting estimates and assumptions
Estimates and assumptions used in the preparation of the financial
statements are continually reviewed and revised as necessary. Whilst
every effort is made to ensure that such estimates and assumptions
are reasonable, by their nature they are uncertain, and as such changes
in estimates and assumptions may have a material impact in the
financial statements.
The principal balances in the financial statements where changes in
estimates and assumptions may have a material impact are as follows:
Subscriber acquisition costs:
Estimates made in relation to future cash inflows, related cash outflows and
rates of in-contract churn are based on the best information available at the
balance sheet date, but such estimates may differ from actual results.
Recoverable amount of non-current assets:
All non-current assets, including goodwill and other intangible assets,
are reviewed for potential impairment using estimates of the future
economic benefits attributable to them. In the case of customer bases,
such estimates involve assumptions in relation to future customer margins
and average customer lives. Any estimates of future economic benefits
made in relation to non-current assets may differ from the benefits that
ultimately arise, and materially affect the recoverable value of the asset.
Trade and other receivables:
Provisions for irrecoverable receivables are based on extensive historic
evidence, and the best available information in relation to specific issues,
but are nevertheless inherently uncertain.
Current taxation:
The complex nature of tax legislation across the tax jurisdictions in
which the Group operates necessitates the use of many estimates
and assumptions, where the outcome may differ from that assumed.
Deferred taxation:
The extent to which tax losses can be utilised depends on the extent
to which taxable profits are generated in the relevant jurisdictions in the
foreseeable future, and on the tax legislation then in force, and as such
the value of associated deferred tax assets is uncertain.
Provisions:
The Group’s reorganisation provisions are based on the best information
available to management at the balance sheet date. However, the future
costs assumed are inevitably only estimates, which may differ from those
ultimately incurred.
Sales provisions are based on historic patterns: of redemption for
promotions, product return rates for returns and warranties, and penalty
rates from network operators. The Group has extensive data in all areas;
however, if the historic patterns on which the provisions are based
change significantly in the future, the financial statements may be
materially impacted.
Provisions relating to the disposal of excess property necessitate
assumptions in respect of period to disposal and exit costs, which may
differ from the ultimate cost of disposal.