Marks and Spencer 2016 Annual Report Download - page 94

92
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Leasing
Where assets are fi nanced by leasing agreements and the risks and
rewards are substantially transferred to the Group (fi nance 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 fi nance 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.
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, a rent free period) is recognised
as deferred income and is released over the l ife of the lease.
Leasehold prepayments
Payments made to acquire leasehold land and buildings are
included in prepayments at cost and are amortised over the life
of the lease.
Cash and cash equivalents
Cash and cash equivalents includes short-term deposits with banks
and other fi nancial institutions, with an initial maturity of three
months or less and credit card payments received within 48 hours.
Inventories
Inventories are valued on a weighted average cost basis and carried
at the lower of cost and net realisable value. Cost includes all direct
expenditure and other attributable costs incurred in bringing
inventories to their present location and condition. All inventories
are fi nished goods. Certain purchases of inventories may be subject
to cash fl ow hedges for foreign exchange risk. The Group applies
a basis adjustment for those purchases in a way that the cost is
initially established by reference to the hedged exchange rate and
not the spot rate at the day of purchase.
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
best estimate of the expenditure required to settle the obligation
at the end of the reporting period, and are discounted to present
value where the e ect 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 at each reporting period and the charge is adjusted to
refl ect 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 profi ts. The
statements of fi nancial position of overseas subsidiaries are
translated at year end exchange rates. The resulting exchange
di erences are booked into 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,
except when deferred in other comprehensive income as qualifying
cash fl ow hedges and qualifying net investment hedges.
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 di erence
approach, and is the tax expected to be payable or recoverable
on temporary di erences between the carrying amount of assets
and liabilities in the statement of fi nancial position and the
corresponding tax bases used in the computation of taxable profi t.
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.
Deferred tax liabilities are generally recognised for all taxable
temporary di erences. Deferred tax liabilities are recognised for
taxable temporary di erences arising on investments in
subsidiaries, associates and joint ventures, except where the
reversal of the temporary di erence can be controlled by the
Group and it is probable that the di erence will not reverse in the
foreseeable future.
Deferred tax liabilities are not recognised on temporary di erences
that arise from goodwill which is not deductible for tax purposes.
Deferred tax assets are recognised to the extent it is probable
that taxable profi ts will be available against which the deductible
temporary di erences can be utilised. The carrying amount of
deferred tax assets is reviewed at the end of each reporting period
and reduced to the extent that it is no longer probable that
su cient taxable profi ts will be available to allow all or part of
the asset to be recovered.
Deferred tax assets and liabilities are not recognised in respect
of temporary di erences that arise on initial recognition of assets
and liabilities acquired other than in a business combination.
Financial instruments
Financial assets and liabilities are recognised in the Group’s
statement of fi nancial position when the Group becomes a party
to the contractual provisions of the instrument.
A. Trade and other receivables: Trade receivables are recorded
initially at fair value and subsequently measured at amortised cost.
Subsequently, this results in their recognition at nominal value less
any allowance for any doubtful debts.
B. Other fi nancial assets: Other fi nancial assets consist of
investments in debt and equity securities and short-term
investments and are classifi ed as either ‘available-for-sale’ or
‘fair value through profi t or loss’. Available for sale fi nancial assets
are initially measured at fair value, including transaction costs
directly attributable to the acquisition of the fi nancial asset.
Financial assets held at fair value through profi t or loss are initially
recognised at fair value and transaction costs are expensed.
Where securities are designated as ‘fair value through profi t or loss’,
gains and losses arising from changes in fair value are included
in the income statement for the period. For ‘available-for-sale’
investments, gains or losses arising from changes in fair value are
recognised in comprehensive income, until the security is disposed
of or is determined to be impaired, at which time the cumulative gain
or loss previously recognised in comprehensive income is included
in the income statement for the period. Equity investments that do
not have a quoted market price in an active market and whose fair
value cannot be reliably measured by other means are held at cost.
C. Classifi cation of fi nancial liabilities and equity: Financial
liabilities and equity instruments are classifi ed 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.