Carphone Warehouse 2014 Annual Report Download - page 70

Carphone Warehouse Group plc
Annual Report 2014
68
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
1 ACCOUNTING POLICIES continued
p) STOCK
Stock is stated at the lower of cost and net realisable value. Cost, net of discounts and volume bonuses from product suppliers (seenote
d), includes all direct costs incurred in bringing stock to its present location and condition and represents finished goods and goods for
resale. Net realisable value is based on estimated selling price, less further costs expected to be incurred to disposal. Provision is made
for obsolete, slow moving or defective items where appropriate.
q) CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible
to known amounts of cash.
r) LOANS AND OTHER BORROWINGS
Loans and other borrowings in the Group's balance sheet represent committed and uncommitted bank loans. Loans and other borrowings
in the balance sheets of joint ventures represent committed and uncommitted bank loans and loans from shareholders other than the Group.
Bank fees and legal costs associated with the securing of external financing are ordinarily capitalised and amortised over the term ofthe
relevant facility. Borrowing costs associated with qualifying assets are included in the cost of the asset. All other borrowing costs are
recognised in the income statement in the period in which they are incurred.
s) PROVISIONS
Provisions are recognised when a legal or constructive obligation exists as a result of past events and 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 fall into the following categories:
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 historical trends and any other information that is considered
tobe relevant.
REORGANISATION
Reorganisation provisions relate principally to redundancy costs, the costs of onerous leases and other onerous contracts, and 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.
OTHER
Other provisions relate to warranties provided in relation to the Best Buy Joint Venture Transaction, dilapidations and similar property
costs, andall other provisions, principally being the anticipated costs of unresolved tax issues and legal disputes, the expected costs
ofinsurance claims, and costs associated withonerous contracts. All such provisions are assessed by reference to the best available
information at the balance sheet date.
t) HEADLINE RESULTS
Headline results are stated before the results of discontinued businesses, including those within joint ventures, any exceptional items that
are considered to be one-off and so material that they require separate disclosure to avoid distortion of underlying performance, and the
amortisation of acquisition intangibles.
u) CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
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.
The principal items in the financial statements where changes in estimates and assumptions may have a material impact are as follows:
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. 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. Further details on the key assumptions utilised
inassessing the carrying value are provided in note .
ACQUISITION ACCOUNTING
Accounting for the CPW Europe Acquisition involved the use of assumptions in relation to the future cash flows associated with acquisition
intangibles, and the use of valuation techniques in order to arrive at the fair value of the other non-current assets and liabilities acquired.
The assumptions applied were based on the best information available to management and valuation techniques were supported by third
party valuation experts. Nevertheless, the actual performance of these assets and liabilities may differ from the valuations derived through
this exercise.