Unilever 2001 Annual Report Download - page 56

Unilever Annual Report & Accounts and Form 20-F 2001
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ACCOUNTING INFORMATION AND POLICIES
Unilever Group
Interests in joint ventures and associated companies are
stated in the consolidated balance sheet at the Group’s
share of their assets and liabilities.
Other fixed investments are stated at cost less any amounts
written off to reflect a permanent impairment.
Current assets
Stocks are valued at the lower of cost and estimated
net realisable value. Cost is mainly average cost, and
comprises direct costs and, where appropriate, a
proportion of production overheads.
Debtors are stated after deducting adequate provision for
doubtful debts.
Current investments are liquid funds temporarily invested
and are stated at their realisable value. The difference
between this and their original cost is taken to interest
in the profit and loss account.
Retirement benefits
The expected costs of providing retirement pensions under
defined benefit plans, as well as the costs of other post-
retirement benefits, are charged to the profit and loss
account over the periods benefiting from the employees’
services. Variations from expected cost are normally
spread over the average remaining service lives of
current employees.
Contributions to defined contribution pension plans are
charged to the profit and loss account as incurred.
Liabilities arising under defined benefit plans are either
externally funded or provided for in the consolidated
balance sheet. Any difference between the charge to
the profit and loss account in respect of funded plans and
the contributions payable to each plan is recorded in the
balance sheet as a prepayment or provision.
Deferred taxation
Full provision is made for deferred taxation, at the rates
of tax prevailing at the year-end unless future rates have
been enacted, on all significant timing differences arising
from the recognition of items for taxation purposes
in different periods from those in which they are included
in the Group accounts.
Provision is made for taxation which will become payable if
retained profits of group companies and joint ventures are
distributed to the parent companies only to the extent that
such distributions are planned.
Derivative financial instruments
The types of derivative financial instruments used by
Unilever are described in note 15 on page 68 and in
the Financial review on pages 30 to 32. All derivative
financial instruments are used for hedging purposes.
Hedge accounting, as described below, is applied.
Changes in the value of forward foreign exchange contracts
are recognised in the results in the same period as changes
in the values of the assets and liabilities they are intended
to hedge. Interest payments and receipts arising from
interest rate derivatives such as swaps and forward rate
agreements are matched to those arising from underlying
debt and investment positions.
Payments made or received in respect of the early
termination of derivative financial instruments are spread
over the original life of the instrument so long as the
underlying exposure continues to exist.
Research, development and market support costs
Expenditure on research and development and on market
support costs such as advertising is charged against the
profit of the year in which it is incurred.
Turnover
Group turnover comprises sales of goods and services after
deduction of discounts and sales taxes. It includes sales to
joint ventures and associated companies but does not
include sales by joint ventures and associated companies or
sales between group companies. Total turnover includes the
Group share of the turnover of joint ventures.
Turnover is recognised when the risks and rewards of the
underlying products and services have been substantially
transferred to the customer.
Transfer pricing
The preferred method for determining transfer prices for
own manufactured goods is to take the market price.
Where there is no market price, the companies concerned
follow established transfer pricing guidelines, where
available, or else engage in arm’s length negotiations.
Trademarks owned by the parent companies and used by
operating companies are, where appropriate, licensed in
return for royalties or a fee.
General services provided by central advisory departments,
business groups, divisions and research laboratories are
charged to operating companies on the basis of fees.
Leases
Lease payments, which are principally in respect of operating
leases, are charged to the profit and loss account on a
straight-line basis over the lease term, or over the period
between rent reviews where these exist.
Shares held by employee share trusts
The assets and liabilities of certain PLC trusts, NV and group
companies which purchase and hold NV and PLC shares to
satisfy options granted are included in the Group accounts.
The book value of shares held is deducted from capital and
reserves, and trust borrowings are included in the Group’s
borrowings. The costs of the trusts are included in the
results of the Group. These shares are excluded from the
basic earnings per share calculation.
Financial Statements