Marks and Spencer 2005 Annual Report Download - page 35

MARKS AND SPENCER GROUP PLC 33
Notes to the financial statements
1ACCOUNTING POLICIES
Basis of preparation
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,
which have been consistently applied, is given below.
Accounting convention and basis of consolidation
The Group financial statements incorporate the financial
statements of Marks and Spencer Group plc and all its subsidiaries
for the 52 weeks ended 2 April 2005.
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 SSAP 19 – ‘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.
On 19 March 2002, the Company acquired 100% of the issued
share capital of Marks and Spencer plc following the implementation
of a Scheme of Arrangement under Section 425 of the Companies
Act 1985. This Scheme of Arrangement was accounted for using
merger accounting principles, although it did not satisfy all of the
conditions required by Schedule 4 of the Act. In the opinion of the
directors, the Scheme of Arrangement was a Group reconstruction
rather than an acquisition since the shareholders in the Company
were the same as the former shareholders of Marks and Spencer
plc and the rights of each shareholder, relative to the others, were
unchanged. Therefore, the directors considered 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 the
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 financial statements
to give a true and fair view of the Group’s results and financial
position, the directors adopted merger accounting principles in
drawing up the financial statements. The directors consider that it
is not practicable to quantify the effect of this departure from the
Companies Act 1985 requirements.
Turnover
Retail turnover comprises sales of goods to customers outside the
Group less an appropriate deduction for actual and expected
returns, discounts and loyalty scheme voucher costs, and is stated
net of Value Added Tax and other sales taxes. Sales of furniture are
recorded on delivery.
Financial Services turnover comprises interest receivable from
customers together with other income attributable to the Financial
Services operation.
Operating leases
Costs in respect of operating leases are charged on a straight line
basis over the lease term.
Pensions
Funded pension plans are in place for the Group’s UK employees
and the majority of employees overseas. The assets of these
pension plans are managed by third-party investment managers
and are held separately in trust.
Regular valuations are prepared by independent professionally
qualified actuaries. These determine the level of contributions
required to fund the benefits set out in the rules of the plans and
allow for the periodic increase of pensions in payment. Following
the full adoption of FRS 17, the regular service cost of providing
retirement benefits to employees during the year, together with the
cost of any benefits relating to past service, is charged to
operating profit in the year.
A credit representing the expected return on the assets of the
retirement benefit schemes during the year is included within other
finance income. This is based on the market value of the assets of
the schemes at the start of the financial year.
A charge within other finance charges, representing the expected
increase in the liabilities of the retirement benefit schemes during
the year, is included within net interest. This arises from the
liabilities of the schemes being one year closer to payment.
The difference between the market value of assets and the present
value of accrued pension liabilities is shown as an asset or liability
in the balance sheet net of deferred tax.
Differences between actual and expected returns on assets during
the year are recognised in the statement of total recognised gains
and losses in the year, together with differences arising from
changes in assumptions.
Goodwill
Prior to 31 March 1998, goodwill arising on consolidation was
written off to reserves in the year of acquisition. As permitted by
FRS 10, this goodwill has not been reinstated in the balance sheet
and remains written off to reserves. Goodwill arising on subsequent
acquisitions is capitalised and amortised over its useful economic
life. The profit or loss arising on the sale of a previously acquired
business includes the attributable goodwill.
Fixed assets
a Capitalised interest
Interest is not capitalised.
b Depreciation
Depreciation is provided to write off the cost or valuation of
tangible fixed assets, less residual value, by equal annual
instalments as follows:
•land: not depreciated;
•freehold and leasehold buildings over 50 years;
depreciated to their estimated residual value over their
estimated remaining economic lives;
•leasehold land and buildings under 50 years: over the
remaining period of the lease;
•fit out: 10-25 years according to the estimated life
of the asset; and
•fixtures, fittings and equipment: 3-15 years according
to the estimated life of the asset.
Depreciation is charged on all additions to, or disposals of,
depreciating assets in the year of purchase or disposal.
Any impairment in value is charged to the profit and loss
account except where, in certain circumstances, it relates to a
previously revalued asset, in which case it is charged through
the statement of total recognised gains and losses.