Unilever 2005 Annual Report Download - page 148

Unilever Annual Report and Accounts 2005 145
amortised cost, unless they form part of a fair value hedge accounting
relationship when they are measured at amortised cost plus the fair
value of the hedged risk.
Derivative financial instruments
We use certain derivative financial instruments for the purposes
of hedging foreign exchange and interest rate risk. IAS 39 requires
recognition of all derivative financial instruments on the balance sheet
and that they are measured at fair value. Income statement volatility
can be avoided by applying hedge accounting, for which the standard
prescribes detailed requirements. As a result, from 1 January 2005, we
recognise all derivative financial instruments on balance sheet at fair
value and apply the new hedge accounting methodology to all
significant qualifying hedging relationships.
Non-current assets and disposal groups held for sale
We have applied the provisions of IFRS 5 with effect from 1 January
2005. Application of this standard resulted in reclassifications of non-
current assets and disposal groups held for sale in the balance sheet
as at 1 January 2005, but did not significantly affect the asset values
themselves.
Other
Foreign currency translation differences
Applying the exemption under IFRS 1, we measure and record all
cumulative foreign currency translation differences arising after the
transition date of 1 January 2004. These differences are classified as
a separate component of equity. On disposal of a foreign operation
the cumulative translation differences are transferred to the income
statement as part of the gain or loss on disposal.
Leasehold land
Under IAS 17 leases relating to land are generally classified as
operating leases because land has an indefinite economic life.
Leasehold land usually requires a premium to be paid in advance.
Under previous GAAP we capitalised this payment within fixed assets
(as property, plant and equipment) and depreciated it over the length
of the lease. Under IFRSs this premium is classified as a prepayment
within trade and other receivables due after more than one year. As
at 1 January 2004 the capitalised amount relating to leasehold land
amounted to €58 million.
Cash flow
The transition from previous GAAP to IFRSs has no effect upon the
cash flows generated by Unilever. The IFRS cash flow statement is
presented in a different format from that required by previous GAAP,
with cash flows split into three categories of activities – operating
activities, investing activities and financing activities. The reconciling
items between the previous GAAP presentation and the IFRSs
presentation have no net impact on the cash flows generated.
In preparing the cash flow statement under IFRSs, cash and cash
equivalents include cash at bank and in hand, highly liquid interest
bearing securities with original maturities of three months or less, and
bank overdrafts. Under previous GAAP, highly liquid interest bearing
securities were not classified as cash equivalents.
Notes to the consolidated accounts
Unilever Group
35 First time adoption of International Financial
Reporting Standards (continued)
IFRSs also require separate disclosure of deferred tax assets and
liabilities on the face of the balance sheet. The deferred tax assets
previously included within current assets under previous GAAP
amounted to €637 million as at the transition date and €973 million
as at 31 December 2004. Deferred tax balances arising in respect of
pension assets and liabilities are no longer netted off against pension
balances. This has led to the overall reclassification of deferred tax
balances within the balance sheet. The deferred tax assets in respect
of pension liabilities under previous GAAP were €1 445 million as at
the transition date and €1 519 million as at 31 December 2004.
Deferred tax liabilities under previous GAAP in respect of pension
liabilities were €252 million as at the transition date and €208 million
as at 31 December 2004.
Joint ventures and associates
Under IFRSs we continue to account for joint ventures and associates
using the equity method. However, the presentation of the results of
joint ventures and associates has changed, as IAS 1 requires that the
share of profit or loss after tax from joint ventures and associates is
presented as a separate item on the face of the income statement
as part of profit before tax, but below operating profit. There is no
impact on net profit as a result of this change. Our share of joint
venture turnover in 2004 amounted to €197 million, and operating
profit from joint ventures amounted to €44 million. Under IFRSs our
turnover excludes the share of turnover of joint ventures.
Dividends
Under IFRSs proposed dividends do not meet the definition of a
liability until such time as they have been approved by shareholders at
the Annual General Meeting. Therefore we no longer recognise a
liability in any period for dividends that have been proposed but will
not be approved until after the balance sheet date. The proposed final
dividends for 2004 amounted to €1 215 million. As at 1 January 2004
the proposed final dividends for 2003 amounted to €1 120 million.
These amounts have been reclassified from current liabilities to
retained profit.
Financial instruments (including preference shares)
From 1 January 2005 Unilever has applied IAS 32 and IAS 39. No
restatements were made to the income statement for the year ended
31 December 2004 and the balance sheets as at 1 January 2004 and
31 December 2004. These standards have many detailed consequences,
of which the key areas of impact are described below:
Classification of preference shares
Under IAS 32, from 1 January 2005 onwards, the NV preference
share capital is classified as a liability rather than as part of equity.
Also from 1 January 2005 onwards, all of the dividends on these
preference shares are recognised in the income statement as part
of interest expense. The carrying value of these preference shares
as at 31 December 2004 was €1 502 million.
Non-derivative financial assets and liabilities
IAS 39 requires certain non-derivative financial assets (those classified
as ‘available-for-sale’) to be held at fair value with unrealised
movements in fair value recognised directly within equity. Non-
derivative financial liabilities will continue to be measured at
Financial Statements