Marks and Spencer 2016 Annual Report Download - page 93

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ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
OUR BUSINESSOUR PERFORMANCEGOVERNANCEFINANCIAL STATEMENTS
1 ACCOUNTING POLICIES CONTINUED
Supplier income continued
The types of supplier income recognised by the Group and the
associated recognition policies are:
A. Promotional contribution: Includes supplier contributions to
promotional giveaways and pre-agreed contributions to annual
‘spend and save’ activity.
Income is recognised as a deduction to cost of sales over the
relevant promotional period.
Income is calculated and invoiced at the end of the promotional
period based on actual sales or according to fi xed contribution
arrangements. Contributions earned but not invoiced are accrued
at the end of the relevant period.
B. Volume-based rebates: Includes annual growth incentives,
seasonal contributions and contributions to share economies of
scale resulting from moving product supply.
Annual growth incentives are calculated and invoiced at the end
of the fi nancial year, once earned, based on fi xed percentage
growth targets agreed for each supplier at the beginning of the
year. They are recognised as a reduction in cost of sales in the year
to which they relate. Other volume based rebates are agreed with
the supplier and spread over the relevant season/contract period
to which they relate. Contributions earned but not invoiced are
accrued at the end of the relevant period.
Uncollected supplier income at the balance sheet date is classifi ed
within the fi nancial statements as follows:
A. Trade and other payables: The majority of income due from
suppliers is netted against amounts owed to that supplier as
the Group has the right to o set these balances. As such the
outstanding supplier income within trade and other payables at
year end is immaterial.
B. Trade and other receivables: Supplier income that has been
earned but not invoiced at the balance sheet date is recognised in
trade and other receivables and primarily relates to volume based
rebates that run up to the period end.
In order to provide users of the accounts with greater understanding
in this area, additional bal ance sheet disclosure is provided in note 17
to the fi nancial statements.
Dividends
Final dividends are recorded in the fi nancial 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 some employees overseas.
For defi ned benefi t pension schemes, the di erence between the
fair value of the assets and the present value of the defi ned benefi t
obligation is recognised as an asset or liability in the statement of
fi nancial position. The defi ned benefi t obligation is actuarially
calculated using the projected unit credit method.
The service cost of providing retirement benefi ts to employees
during the year, together with the cost of any benefi ts relating to
past service, is charged to operating profi t in the year.
The net interest cost on the net retirement benefi t asset/liability is
calculated by applying the discount rate, measured at the beginning
of the year, to the net defi ned benefi t asset/liability and is included
as a single net amount in fi nance income.
Remeasurements, being actuarial gains and losses, together with
the di erence between actual investment returns and the return
implied by the net interest cost, are recognised immediately in the
statement of comprehensive income.
Payments to defi ned contribution retirement benefi t schemes are
charged as an expense on an accruals basis.
Intangible assets
A. Goodwill: Goodwill arising on consolidation represents the
excess of the consideration paid and the amount of any non-
controlling interest in the acquiree over the fair value of the
identifi able 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 annually or as triggering
events occur. Any impairment is recognised immediately in the
income statement.
B. Brands: Acquired brand values are held on the statement of
fi nancial position initially at cost. Defi nite life intangibles are
amortised on a straight-line basis over their estimated useful lives.
Indefi nite life intangibles are tested for impairment annually or as
triggering events occur. 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 goods and services, as well as internal
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 development is held at cost less any recognised impairment
loss. Any impairment in value is recognised immediately in the
income statement.
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.
Property is not revalued for accounting purposes. 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.
Depreciation is provided to write o 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 – depreciated over the remaining period of the lease; and
> Fixtures, fi ttings and equipment – 3 to 25 years according to the
estimated economic 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 recognised immediately in the
income statement.