Unilever 2005 Annual Report Download - page 88

Financial Statements
Unilever Annual Report and Accounts 2005 85
Notes to the consolidated accounts
Unilever Group
1 Accounting information and policies (continued)
Lease payments relating to operating leases, are charged to the
income statement on a straight-line basis over the lease term,
or over the period between rent reviews where these exist.
Transfer pricing
The preferred method for determining transfer prices for our own
manufactured goods is to use 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, regional
and category management, and research laboratories are charged to
operating companies on the basis of fees.
Share-based payments
The economic cost of awarding shares and share options to
employees is reflected by recording a charge in the income statement
equivalent to the fair value of the benefit awarded. The fair value is
determined with reference to option pricing models, principally
adjusted Black-Scholes models or multinomial pricing model. The
charge is recognised in the income statement over the vesting period
of the award. Share-based payments are described in more detail in
note 31 on pages 132 to 141.
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 consolidated accounts. The book
value of shares held is deducted from other 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.
Non-current assets held for sale
Assets and groups of assets and liabilities which comprise disposal
groups are classified as ‘held for sale’ when all of the following criteria
are met: a decision has been made to sell, the assets are available for
sale immediately, the assets are being actively marketed, and a sale
has been or is expected to be concluded within twelve months of the
balance sheet date. Assets and disposal groups ‘held for sale’ are
valued at the lower of book value or fair value less disposal costs.
Assets held for sale are not depreciated.
Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
The preparation of financial statements under IFRSs requires
management to make estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions that
have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are
discussed below.
Impairment of goodwill and indefinite-lived intangible assets
Impairment reviews in respect of goodwill and intangible assets are
performed at least annually. More regular reviews are performed if
events indicate that this is necessary. Examples of such triggering
events would include a significant planned restructuring, a major
change in market conditions or technology, expectations of future
operating losses, or negative cash flows.
The recoverable amounts of cash-generating units are determined
based on the higher of realisable value and value-in-use calculations.
These calculations require the use of estimates. Details of key
assumptions made are set out in note 10 on page 99.
Retirement benefits
Pension accounting requires certain assumptions to be made in order
to value our obligations and to determine the charges to be made to
the income statement. These figures are particularly sensitive to
assumptions for discount rates, mortality, inflation rates and expected
long-term rates of return on assets. Details of assumptions made are
given in note 22 on pages 115 and 116.
Taxation
The Group is subject to taxes in numerous jurisdictions. Significant
judgement is required in determining worldwide provision for taxes.
There are many transactions and calculations during the ordinary
course of business for which the ultimate tax determination is
uncertain. The Group recognises liabilities for anticipated tax audit
issues based on estimates of whether additional taxes will be due.
Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the
income tax and deferred tax provisions in the period in which such
determination is made.
Recent accounting developments
IFRS 7, ‘Financial Instruments: Disclosures’, (effective from 1 January
2007), introduces new disclosures to improve the information about
financial instruments. It requires the disclosures of qualitative and
quantitative information about exposure to risks arising from financial
instruments, including specified minimum disclosures about credit
risk, liquidity risk and market risk, including sensitivity analysis to
market risk. It replaces disclosure requirements in IAS 32, ‘Financial
Instruments: Disclosure and Presentation’. Unilever will apply IFRS 7
and the amendment to IAS 1 from annual periods beginning
1 January 2007, and it is not expected to have a material effect
on the Group’s disclosures.
IFRIC 4, ‘Determining whether an Arrangement contains a Lease’,
(effective from 1 January 2006), requires the determination of
whether an arrangement is or contains a lease to be based on the
substance of the arrangement. The adoption is not expected to have
a material effect on the consolidated results of operations or financial
position of Unilever.
IFRIC 7, ‘Applying the Restatement Approach’ under IAS 29 ‘Financial
Reporting in Hyperinflationary Economies’ (effective for periods
beginning 1 March 2006) provides guidance on how to apply the
requirements of IAS 29 in a reporting period in which an entity
identifies the existence of hyperinflation in the economy when that
economy was not hyperinflationary in the prior period. The adoption
is not expected to have a material effect on the consolidated results of
operations or financial position of Unilever.
Recent changes in reporting requirements under US GAAP are
discussed on page 161.