Unilever 2005 Annual Report Download - page 86

Financial Statements
Unilever Annual Report and Accounts 2005 83
Notes to the consolidated accounts
Unilever Group
1 Accounting information and policies (continued)
Property, plant and equipment
Property, plant and equipment is stated at cost less depreciation and
impairment. Depreciation is provided on a straight-line basis at
percentages of cost based on the expected average useful lives of the
assets and their residual values. Estimated useful lives by major class
of assets are as follows:
Freehold buildings 40 years
(no depreciation on freehold land)
Leasehold buildings 40 years*
Plant and equipment 2–20 years
*or life of lease if less than 40 years
Property, plant and equipment is subject to review for impairment if
triggering events or circumstances indicate that this is necessary. Any
impairment is charged to the income statement as it arises.
Biological assets
Biological assets are stated at fair value less estimated point-of-sale
costs. Any changes in the fair value of such biological assets are
recognised in the income statement. Point-of-sale costs include all
costs that would be necessary to sell the assets, excluding costs
necessary to get the assets to market.
Joint ventures and associates
Joint ventures are undertakings in which the Group has a long-term
participating interest and which are jointly controlled by the Group
and one or more other parties. Associates are undertakings in which
the Group has a participating interest and can exercise significant
influence.
Interests in joint ventures and associates are accounted for using the
equity method and are stated in the consolidated balance sheet at the
Group’s share of their aggregate assets and liabilities. The Group’s
share of the profit or loss after tax of joint ventures and associates is
included in the Group’s consolidated profit before taxation.
Financial instruments
The Group accounts for financial instruments under IAS 32 ‘Financial
Instruments: Disclosure and Presentation’ and IAS 39 ‘Financial
Instruments: Recognition and Measurement’.
Financial assets
Purchases and sales of financial assets are recognised based on
settlement accounting. They are initially recognised at fair value plus
directly attributable transaction costs. Any impairment of a financial
asset is charged to the income statement as it arises.
Financial assets are classified according to the purpose for which the
investments were acquired. This gives rise to the following categories:
held-to-maturity investments, loans and receivables, available-for-sale
financial assets and financial assets at fair value through profit or loss.
Unilever determines the classification of its investments at initial
recognition and re-evaluates this designation at each reporting date.
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets
with fixed or determinable payments and fixed maturities that
management has the positive intention and ability to hold to maturity.
They are included in non-current investments at amortised cost using
the effective interest method, less any amounts written off to reflect
impairment.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
They arise when the Group provides money, goods or services directly
to a debtor with no intention of trading the receivable. Loans and
receivables are included in trade and other receivables in the balance
sheet at amortised cost.
Trade and other receivables are stated after deducting adequate
provision for doubtful debts.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets
that are either designated in this category or not classified in any of
the other categories. They are included in non-current assets unless
management intends to dispose of the investment within 12 months
of the balance sheet date. Unrealised gains and losses arising from
changes in the fair value of financial assets classified as available-for-
sale are recognised in equity. Realised gains and losses arising from
changes in fair value, interest and exchange differences are included
in the income statement.
Financial assets at fair value through profit or loss
A financial asset is classified in this category if acquired principally for
the purpose of selling in the short term or if so designated. Derivatives
are also classified in this category unless they are designated as
hedges. Assets in this category are classified as current assets if they
are either held-for-trading or are expected to be realised within 12
months of the balance sheet date. Realised and unrealised gains and
losses arising from changes in fair value are included in the income
statement.
Borrowings
Borrowings are recognised initially at fair value, net of transaction
costs incurred. Borrowings are subsequently stated at amortised cost
unless they are part of a fair value hedge accounting relationship; any
difference between the proceeds and the redemption value is
recognised in the income statement over the period of the borrowings
using the effective interest method. Those borrowings that are part of
a fair value hedge accounting relationship are also recorded on an
amortised cost basis, plus or minus the fair value attributable to the
risk being hedged with a corresponding entry in the income
statement.
No borrowing costs are capitalised as part of property, plant and
equipment.
Derivative financial instruments
The activities of the Group expose it primarily to the financial risks of
changes in foreign currency exchange rates and interest rates. The
Group uses foreign exchange forward contracts, interest rate swap
contracts and forward rate agreements to hedge these exposures. The
Group also uses commodity contracts to hedge future requirements
for certain raw materials, almost always for physical delivery. Those
contracts that can also be settled in cash are treated as a financial
instrument. The Group does not use derivative financial instruments
for speculative purposes. The use of leveraged instruments is not
permitted.