Marks and Spencer 2006 Annual Report Download - page 56

Marks and Spencer Group plc
Notes to the financial statements continued
1 ACCOUNTING POLICIES continued
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
interest. This is based on the market value of the assets of the
schemes at the start of the financial year.
A charge is also made within interest representing the expected
increase in the liabilities of the retirement benefits schemes
during the year. This arises from the liabilities of the schemes
being one year closer to payment.
The difference between the market value of the assets and the
present value of accrued pension liabilities is shown as an asset
or liability in the balance sheet.
Actuarial gains and losses are recognised immediately in
the statement of recognised income and expense.
Intangible Assets
A Goodwill
Goodwill arising on consolidation represents the excess
of the cost of acquisitions over the Group’s interest in the
fair value of the identifiable assets and liabilities (including
intangible assets) of the acquired entity at the date of the
acquisition. Goodwill is recognised as an asset and
assessed for impairment at least annually. Any impairment
is recognised immediately in the income statement.
Upon disposal of a subsidiary the attributable goodwill is
included in the calculation of the profit or loss arising on
disposal. Goodwill written off to reserves under UK GAAP
prior to 31 March 1998 has not been reinstated and is not
included in determining any subsequent profit or loss on
disposal.
B Brands
Acquired brand values are held on the balance sheet at cost
and amortised on a straight-line basis over their estimated
useful lives. Any impairment in value is recognised
immediately in the income statement.
C Software intangibles
Where computer software is not an integral part of a related
item of computer hardware, the software is treated as an
intangible asset. Capitalised software costs include external
direct costs of material and services and the payroll and
payroll-related costs for employees who are directly
associated with the project.
Capitalised software development costs are amortised on
a straight-line basis over their expected economic lives,
normally between three to five years.
Property, Plant and Equipment
A Land and buildings
Under UK GAAP property was stated at historical cost,
subject to certain properties having been revalued as at
31 March 1988. The property portfolio was revalued as at
2 April 2004. The Group adopted the following values on
transition to IFRS:
• freehold land and buildings: the 2004 revaluation was
adopted as deemed cost under the exemptions available
under IFRS 1;
• leasehold buildings: cost or 1988 revaluations were
adopted as deemed cost under the provisions of IFRS 1;
and
• leasehold land: any revaluations held against leasehold
land were derecognised and the remaining cost included
in prepayments.
Given that under IFRS leasehold land cannot be
revalued, the 2004 valuation as it related to leasehold
properties was not adopted on transition.
The Group’s policy is to state property, plant and
equipment at cost less accumulated depreciation and
not to revalue property for accounting purposes.
B Interest
Interest is not capitalised.
C Depreciation
Depreciation is provided to write off the cost of tangible
non-current assets (including investment properties), less
estimated residual values, by equal annual instalments as
follows:
• freehold land: not depreciated;
• freehold and leasehold buildings with a remaining lease
term over 50 years: depreciated to their residual value
over their estimated remaining economic lives;
• leasehold buildings with a remaining lease term of less
than 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.
Residual values and useful economic lives are reviewed
annually. 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 income
statement.
D Assets held under leases
Where assets are financed by leasing agreements where the
risks and rewards are substantially transferred to the Group
(‘finance leases’) the assets are treated as if they had been
purchased outright and the corresponding liability to the
leasing company is included as an obligation under finance
leases. Depreciation on leased assets is charged to the
income statement on the same basis as owned assets.
Leasing payments are treated as consisting of capital and
interest elements and the interest is charged to the income
statement.
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