Unilever 2002 Annual Report Download - page 71

Unilever Annual Report & Accounts and Form 20-F 2002
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 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. Full provision is
made at the rates of tax prevailing at the year end unless
future rates have been enacted or substantively enacted.
Deferred tax assets and liabilities have not been discounted.
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
we are committed to such distributions.
Provisions
Provisions are recognised when either a legal or constructive
obligation, as a result of a past event, exists at the balance
sheet date and where the amount of the obligation can be
reasonably estimated.
Derivative financial instruments
The types of derivative financial instruments used by
Unilever are described in note 15 on pages 85 and 86 and
in the Financial review on pages 37 to 39. 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.
Group turnover and 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. Turnover includes the
Group share of the turnover of joint ventures, but does not
include our share of the turnover of associates.
Revenue 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
calculation of earnings per share.
68 Accounting information and policies