Marks and Spencer 2005 Annual Report Download - page 36

34 MARKS AND SPENCER GROUP PLC
Notes to the financial statements continued
1ACCOUNTING POLICIES continued
c Land and buildings
The Group’s freehold and leasehold properties in the United
Kingdom were valued on the basis of open market value
for existing use in 1982. At 31 March 1988, those same
properties (excluding subsequent additions and adjusted for
disposals) were revalued. On adoption of FRS 15, the Group
followed the transitional provisions to retain the book value
of land and buildings which were revalued in 1988, but not
to adopt a policy of revaluation in the future.
These values are retained subject to the requirement to test
assets for impairment in accordance with FRS 11.
d Investment properties
Investment properties are revalued annually and included in the
balance sheet at their open market value. In accordance with
SSAP 19, no depreciation is provided in respect of investment
properties. This represents a departure from the Companies
Act 1985 requirements concerning the depreciation of fixed
assets. These properties are held for investment and the
directors consider that the adoption of this policy is necessary
to give a true and fair view.
Current asset investments
Current asset investments are stated at market value. All profits
and losses from such investments are included in net interest
income or in Financial Services turnover as appropriate. This
represents a departure from the Companies Act 1985
requirements concerning the valuation of current asset
investments. These assets are held as investments in the
insurance and the long-term assurance businesses and the
directors consider that the adoption of this policy is necessary
to give a true and fair view.
Stocks
Stocks are valued at the lower of cost and net realisable value
using the retail method. All stocks are finished goods.
Derivative financial instruments
The Group uses derivative financial instruments to manage
its exposures to fluctuations in foreign currency exchange rates
and interest rates. Derivative instruments utilised by the Group
include interest rate and currency swaps, and forward currency
contracts. Amounts payable or receivable in respect of interest rate
swaps are recognised as adjustments to net interest income over
the period of the contract. Forward currency contracts are entered
into as hedges, with the instrument’s impact on profit deferred until
the underlying transaction is recognised in the profit and
loss account.
Foreign currencies
The results of international subsidiaries are translated at the
weighted average of monthly exchange rates for sales and profits.
The balance sheets of overseas subsidiaries are translated at year-
end exchange rates. The resulting exchange differences are dealt
with through reserves and reported in the consolidated statement
of total recognised gains and losses.
Transactions denominated in foreign currencies are translated at
the exchange rate at the date of the transaction, or the forward
exchange contract rate where appropriate. Foreign currency assets
and liabilities held at the year-end are translated at year-end
exchange rates or the exchange rate of a related forward
exchange contract where appropriate. The resulting exchange
gain or loss is dealt with in the profit and loss account.
Deferred taxation
Deferred taxation is accounted for on an undiscounted basis at
expected tax rates on all differences arising from the inclusion of
items of income and expenditure in taxation computations in
periods different from those in which they are included in the
financial statements. A deferred tax asset is only recognised when
it is more likely than not that the asset will be recoverable in the
foreseeable future out of suitable taxable profits from which the
underlying timing differences can be deducted.
Policies relating to discontinued operations
Loans and advances to customers
Loans and advances are classified as impaired when an instalment
is in excess of 30 days overdue. Specific provisions are made
against all advances identified as impaired at the balance sheet
date to the extent that, in the opinion of the directors, recovery is
doubtful. Specific provisions against such exposures are calculated
using a bad debt provision model, which uses the last two years’
credit history to produce estimates of the likely level of asset
impairment. General provisions relate to latent bad and doubtful
debts which are present in any lending portfolio but have not been
specifically identified. General provisions are calculated using the
same bad debt provision model and an evaluation of current
economic and political factors.
Loans and advances are written off when there is no realistic
prospect of recovery, based on a predetermined set of criteria.
Account balances written off include those where no payment has
been received for a period of 12 months since the account was
identified as doubtful, and in other situations such as bankruptcy,
insolvency or fraud.
Long-term assurance business
The value of the long-term assurance business consists of the
present value of surpluses expected to emerge in the future
from business currently in force, and this value is included in
prepayments and accrued income. In determining their value,
these surpluses are discounted at a risk-adjusted, post-tax rate.
Changes in the value are included in the profit and loss account
grossed up at the standard rate of corporation tax applicable to
insurance companies.