Marks and Spencer 2006 Annual Report Download - page 55

Marks and Spencer Group plc
Notes to the financial statements
1 ACCOUNTING POLICIES
Basis of preparation
The financial statements have been prepared in accordance
with International Financial Reporting Standards (‘IFRS’) as
adopted by the European Union and with those parts of the
Companies Act 1985 applicable to companies reporting under
IFRS. The disclosures required by IFRS 1 – ‘First-time Adoption
of International Financial Reporting Standards’ concerning the
transition from UK GAAP to IFRS are given in notes 33 and 34.
The date of transition to IFRS is 4 April 2004.
The impacts of IFRSs issued but not yet effective at the balance
sheet date would not have a significant impact on these
financial statements.
A summary of the Company’s and the Group’s accounting
policies is given below.
Accounting convention
The financial statements are drawn up on the historical cost
basis of accounting, except as disclosed in the accounting
policies set out below.
Basis of consolidation
The Group financial statements incorporate the financial
statements of Marks and Spencer Group plc and all its
subsidiaries made up to the year end date. Where necessary,
adjustments are made to the financial statements of subsidiaries
to bring the accounting policies used into line with those used
by the Group.
Subsidiary undertakings are all entities over which the Group
has the power to govern the financial and operating policies
generally accompanying a shareholding of more than one half
of the voting rights. Subsidiary undertakings acquired during the
year are recorded using the acquisition method of accounting
and their results included from the date of acquisition.
The separable net assets, both tangible and intangible of the
newly acquired subsidiary undertakings are incorporated into the
financial statements on the basis of the fair value as at the
effective date of control.
Results of subsidiary undertakings disposed of during the
financial year are included in the financial statements up to
the effective date of disposal. Where a business component
representing a separate major line of business is disposed of,
or classified as held for sale, it is classified as a discontinued
operation. The post-tax profit or loss of the discontinued
operation is shown as a single amount on the face of the
income statement, separate from the other results of the Group.
Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated.
First time adoption of International Financial Reporting
Standards
IFRS 1 – ‘First-time Adoption of International Financial Reporting
Standards’ sets out the requirements for the first time adoption
of IFRS. The Group is required to establish its IFRS accounting
policies for the year to 1 April 2006 and, in general, apply these
retrospectively to determine the IFRS opening balance sheet at
its date of transition, 4 April 2004.
The standard permits a number of optional exemptions to this
general principle. The Group has adopted the following
approach to the key exemptions:
• business combinations: the Group has chosen not to restate
business combinations prior to the transition date;
• fair value or revaluation as deemed cost: the Group has
adopted a valuation as deemed cost on transition for
freehold land and buildings;
• employee benefits: all cumulative actuarial gains and losses,
having been recognised in equity under FRS 17 for UK
GAAP purposes, have continued to be recognised in equity
at the transition date;
• financial instruments: the Group has taken the exemption
not to restate comparatives for IAS 32 – ‘Financial
Instruments: Disclosure and Presentation’ and IAS 39 –
‘Financial Instruments: Recognition and Measurement’.
Comparative information for 2005 in the 2006 financial
statements in respect of these items is presented on a UK
GAAP basis as previously reported;
• share-based payments: the Group has not adopted the
exemption to apply IFRS 2 – ‘Share-Based Payments’ only
to awards made after 7 November 2002. Instead, a full
retrospective approach has been followed on all awards
granted but not fully vested at the date of transition to
maintain consistency across reporting periods; and
• cumulative translation differences: the cumulative translation
differences for all foreign operations are deemed to be zero
at the date of transition to IFRS.
Revenue
Revenue 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.
Dividends
Dividends are recorded in the financial statements in the period
in which they are approved by the Company’s shareholders.
Interim dividends are recorded in the period in which they are
approved and paid.
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 in respect of the defined benefit schemes.
These determine the level of contribution required to fund the
benefits set out in the rules of the plans and allow for the
periodic increase of pensions in payment. The service cost
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