Marks and Spencer 2002 Annual Report Download - page 31

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Notes to the financial statements
1. Basis of accounting
Marks and Spencer Group p.l.c. (the Company) was incorporated on 23 July 2001. On 19 March 2002, the Company
acquired 100% of the issued share capital of Marks and Spencer p.l.c. following implementation of a Scheme of
Arrangement under section 425 of the Companies Act 1985.
The Scheme of Arrangement involved the issue of 17 ordinary shares and 21 redeemable B shares by the Company
for every 21 ordinary shares held by the shareholders of Marks and Spencer p.l.c.
The Scheme of Arrangement has been accounted for using merger accounting principles, although it does not
satisfy all the conditions required (see below).
Schedule 4A to the Companies Act 1985 and FRS 6 ‘Acquisition and Mergers’ require acquisition accounting to
be adopted where all the conditions laid down for merger accounting are not satisfied. Under the Scheme of
Arrangement, not all of the conditions were satisfied because the fair value of the non-equity share element of the
consideration (the redeemable B shares) given by the Company for the shares in Marks and Spencer p.l.c. exceeded
10% of the nominal value of the share element of the consideration.
However, in the opinion of the directors, the Scheme of Arrangement is a group reconstruction rather than an
acquisition, since the shareholders of the Company are the same as the former shareholders in Marks and Spencer
p.l.c. and the rights of each shareholder, relative to the others, are unchanged and no minority interest in the net
assets of the Group is altered. Therefore, the directors consider that to record the Scheme of Arrangement as an
acquisition by the Company, attributing fair values to the assets and liabilities of the Group and reflecting only the
post Scheme of Arrangement results within these financial statements would fail to give a true and fair view of the
Group’s results and financial position.
Accordingly, having regard to the overriding requirement under section 227(6) of the Companies Act 1985 for the
financial statements to give a true and fair view of the Group’s results and financial position, the directors have
adopted merger accounting principles in drawing up these financial statements. The directors consider that it is not
practicable to quantify the effect of this departure from the Companies Act 1985 requirements.
The consolidated financial statements are presented as if the Scheme of Arrangement had been effective on
1 April 2001 except for the effect of the capital restructure and subsequent reduction of capital which took place
on 22 March 2002. The consolidated profit and loss account combines the results of Marks and Spencer p.l.c.
for the 52 week period ended 30 March 2002 with those of the Company for the period since its incorporation
to 30 March 2002. The comparative figures relate to Marks and Spencer p.l.c. as restated for the effect of the
Scheme of Arrangement. Further detail relating to the Scheme of Arrangement can be found in note 24.
2. Accounting policies
The financial statements have been prepared in accordance with applicable accounting standards in the United
Kingdom. A summary of the more important Group accounting policies is given below. These policies have been applied
consistently with the exception of the Group’s policy on deferred tax which has been amended following the adoption of
the new accounting standard on deferred tax. Details of the effect of this change in accounting policy are set out in note 7.
In addition, the Group has adopted the following financial reporting standards in these financial statements for the
first time:
i) FRS 17 ‘Retirement Benefits’. The Group is not required to adopt this standard in full until the period ending
March 2004, however the transitional disclosure requirements are set out in note 11A.
ii) FRS 18 ‘Accounting Policies’ has been complied with, but has not resulted in any amendments to the Group’s
accounting policies.
Accounting convention and basis of consolidation
The financial statements are drawn up on the historical cost basis of accounting, modified to include the valuation
of certain United Kingdom properties at 31 March 1988 and the valuation of investment properties. Compliance with
SSAP19, ‘Accounting for Investment Properties’ requires a departure from the requirements of the Companies Act
1985 relating to the depreciation of investment properties as explained below.
The Group financial statements incorporate the financial statements of Marks and Spencer Group p.l.c. and all its
subsidiaries for the 52 weeks ended 30 March 2002, or to the date of disposal.
Turnover
Turnover comprises sales of goods to customers outside the Group less returns, VAT and sales taxes, together with
interest and other income attributable to the Financial Services operations.