Marks and Spencer 2006 Annual Report Download - page 57

55Marks and Spencer Group plc
1 ACCOUNTING POLICIES continued
All other leases are ‘operating leases’ and the costs in
respect of operating leases are charged on a straight-line
basis over the lease term. The value of any lease incentive
received to take on an operating lease (for example, rent free
periods) is recognised as deferred income and is released
over the life of the lease.
Investment Properties
Investment properties are recorded at cost less accumulated
depreciation and any recognised impairment loss.
Leasehold Prepayments
Payments made to acquire leasehold land are included in
prepayments at cost and are amortised over the life of the lease.
Share-Based Payments
The Group issues equity settled share-based payments to
certain employees. A fair value for the equity settled share
awards is measured at the date of grant. The Group measures
the fair value using the valuation technique most appropriate to
value each class of award, either the Black-Scholes or Monte
Carlo method.
The fair value of each award is recognised as an expense over
the vesting period on a straight-line basis, after allowing for an
estimate of the share awards that will eventually vest. The level
of vesting is reviewed annually; and the charge is adjusted to
reflect actual and estimated levels of vesting.
Inventories
Inventories are valued at the lower of cost and net realisable
value using the retail method. All inventories are finished goods.
Foreign Currencies
The results of overseas 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 recognised income and expense.
Transactions denominated in foreign currencies are translated
at the exchange rate at the date of the transaction. Foreign
currency assets and liabilities held at the balance sheet date
are translated at the closing balance sheet rate. The resulting
exchange gain or loss is dealt with in the income statement.
Taxation
The tax charge comprises current tax payable and deferred tax.
The current tax charge represents an estimate of the amounts
payable to tax authorities in respect of the Group’s taxable
profits and is based on an interpretation of existing tax laws.
Deferred tax is recognised on temporary differences between
the carrying amount of an asset or liability in the balance sheet
and its tax base at tax rates that are expected to apply when
the asset is realised or the liability settled, based on tax rates
that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is not recognised in respect of:
• the initial recognition of goodwill that is not tax deductible;
and
• the initial recognition of an asset or liability in a transaction
which is not a business combination and at the time of the
transaction does not affect accounting or taxable profits.
Deferred tax assets are only recognised when it is probable that
taxable profits will be available against which the deferred tax
asset can be utilised.
Deferred tax liabilities are not provided in respect of
undistributed profits of non-UK resident subsidiaries where (i) the
Group is able to control the timing of distribution of such profits
and (ii) it is not probable that a taxable distribution will be made
in the foreseeable future.
Financial Instruments
The Group has adopted both IAS 32 – ‘Financial Instruments:
Disclosure and Presentation’ and IAS 39 – ‘Financial Instrument:
Recognition and Measurement’ from 3 April 2005. Under the
IFRS 1 transition rules IAS 32 and IAS 39 are not applied to
comparative figures.
Financial assets and liabilities are recognised on the Group’s
balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
A Trade receivables
Trade receivables are recorded at their nominal amount less
an allowance for any doubtful debts.
B Investments
Investments are classified as either ‘available for sale’, ‘fair
value through profit or loss’ or ‘held to maturity’. They are
initially measured at cost, including transaction costs, with
the exception of ‘fair value through profit and loss’. Where
securities are designated as ‘fair value through profit or loss’,
gains and losses arising from changes in fair value are
included in net profit or loss for the period. For ‘available for
sale’ investments, gain or losses arising from changes in fair
value are recognised directly in equity, until the security
is disposed of or is determined to be impaired, at which time
the cumulative gain or loss previously recognised in equity
is included in the net profit or loss for the period. Equity
investments that do not have a quoted market price in an
active market and whose fair value can not be reliably
measured by other means are held at cost. ‘Held to
maturity’ investments are measured at amortised cost using
the effective interest method.
Investments in subsidiaries are held at cost less impairment.
Dividends received from the pre-acquisition profits of
subsidiaries are deducted from the cost of investment.
C Financial liability and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that
evidences a residual interest in the assets of the Group
after deducting all of its liabilities.