Marks and Spencer 2011 Annual Report Download - page 81

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Financial statements & other information
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Financial statements
1 Accounting policies continued
Actuarial gains and losses are recognised immediately in the
statement of comprehensive income.
Payments to defined contribution retirement benefit schemes are
charged as an expense as they fall due.
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.
B. Brands Acquired brand values are held on the statement of
financial position initially 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 and ten years. Computer software under
Property, plant and equipment
The Group’s policy is to state property, plant and equipment
at cost less accumulated depreciation and any recognised
impairment loss. Assets in the course of construction are held
at cost less any recognised impairment loss. Cost includes
professional fees and, for qualifying assets, borrowing costs
capitalised in accordance with the Group’s accounting policy.
A. Land and buildings The Group’s policy is not to revalue
property for accounting purposes.
B. 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; and
–fixtures, fittings and equipment – 3 to 25 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.
C. Assets held under leases Where assets are financed by
leasing agreements and 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, unless the
term of the lease is shorter. Leasing payments are treated as
consisting of capital and interest elements and the interest is
charged to the income statement.
development is held at cost less any recognised impairment loss.
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 properties held to earn rentals and/or
for capital appreciation. 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.
Inventories
Inventories are valued at the lower of cost and net realisable value
using the retail method, which is computed on the basis of selling
price less the appropriate trading margin. All inventories are
finished goods.
Provisions
Provisions are recognised when the Group has a present
obligation as a result of a past event, and it is probable that the
Group will be required to settle that obligation. Provisions are
measured at the directors’ best estimate of the expenditure
required to settle the obligation at the balance sheet date,
and are discounted to present value where the effect is material.
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
of each award using the Black-Scholes model where appropriate.
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.
Foreign currencies
The results of overseas subsidiaries are translated at the weighted
average of monthly exchange rates for revenue and profits.
The statements of financial position 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 comprehensive income.
Transactions denominated in foreign currencies are translated at
the exchange rate at the date of the transaction. Foreign currency
monetary assets and liabilities held at the end of the reporting
period are translated at the closing balance sheet rate.
The resulting exchange gain or loss is recognised within the
income statement.
Taxation
Tax expense comprises current and deferred tax. Tax is
recognised in the income statement, except to the extent it
relates to items recognised in other comprehensive income or
directly in equity, in which case the related tax is also recognised
in other comprehensive income or directly in equity.
Deferred tax is accounted for using a temporary difference
approach, and is the tax expected to be payable or recoverable
on temporary differences between the carrying amount of assets
and liabilities in the statement of financial position and the
corresponding tax bases used in the computation of taxable
profit. Deferred tax is calculated based on the expected manner
of realisation or settlement of the carrying amount of assets and
liabilities, applying tax rates and laws enacted or substantively
enacted at the end of the reporting period.