Carphone Warehouse 2004 Annual Report Download - page 32

Notes to the Financial Statements
1 Accounting policies
The financial statements have been prepared in accordance with
applicable United Kingdom accounting standards under the historical
cost convention. The following principal accounting policies have been
applied consistently throughout the period and the preceding period
with the exception of the change in accounting policy resulting from
the adoption of Urgent Issues Task Force (UITF) 38 ‘Accounting for
ESOP Trusts’, as detailed in note 12.
a) Turnover
Tur nover is stated net of VAT and other sales related taxes. The
following accounting policies are applied to each business segment:
Distribution:
Distribution turnover comprises revenue generated from the sale of
mobile communication products and services, commissions receivable
on sales, ongoing revenue (share of customer airtime spend, and
customer revenue and retention bonuses) and insurance premiums.
•Commission receivable on sales is recognised when the sales
to which the commission relates are made.
•Volume bonuses are recognised when the conditions on which they
are earned have been met.
•Ongoing revenue is recognised as it is earned over the life of the
relevant customers.
•Insurance premiums are typically paid quarterly in advance.
Initial administration fees, which are specified in the contract,
are recognised at the point of sale. Insurance premium income
is recognised over the life of the relevant policies.
•All other revenue is recognised when sales are made.
Telecoms Services:
Telecoms Services turnover comprises revenue generated from facilities
management, revenue from mobile and fixed network services and
ongoing revenue. All such revenue is recognised as it is earned over
the life of the relevant customers.
Wholesale:
Wholesale turnover comprises revenue generated from the sale
of mobile hardware and is recognised when sales are made.
b) Basis of consolidation
The consolidated financial statements incorporate the results of The
Carphone Warehouse PLC and its subsidiary undertakings drawn up
to 27 March 2004. The results of subsidiaries acquired or sold during
the period are included from or to the date on which control passed.
Acquisitions are accounted for under the acquisition method.
c) Intangible assets – goodwill
Goodwill arising on the acquisition of subsidiary undertakings and
businesses, representing any excess of the fair value of the consideration
given over the fair value of the identifiable assets and liabilities acquired,
is capitalised and written off on a straight line basis over its useful
economic life of up to 20 years. Provision is made for any impairment.
d) Tangible fixed assets
Tangible fixed assets are stated at cost, net of depreciation and any
provision for impairment. Depreciation is provided on all tangible fixed
assets at rates calculated to write off the cost, less estimated residual
value, of each asset on a straight line basis over its expected useful life
from the date it is brought into use, as follows:
Freehold buildings 2-4% per annum
Short leasehold costs 10 years or the lease term if less
Computer hardware and software,
network and office equipment 12.5-50% per annum
Fixtures and fittings 20-25% per annum
Motor vehicles 25% per annum
e) Stock
Stock is stated at the lower of cost and net realisable value. Cost
includes all direct costs incurred in bringing stock to its present location
and condition and represents finished goods and goods for resale.
Net realisable value is based on estimated selling price, less further
costs expected to be incurred to disposal. Provision is made for
obsolete, slow-moving or defective items where appropriate.
f) Investments
Fixed asset investments are shown on an individual basis at cost less
provision for impairment in value, other than investments that are
independently managed within external funds, which are evaluated on
a portfolio basis at the end of the period. Current asset investments are
stated at the lower of cost and net realisable value.
g) Leases
Rental payments under operating leases are charged to the profit and
loss account on a straight line basis over the period of the lease.
h) Taxation
Current tax, including UK corporation tax and overseas tax, is provided
at amounts expected to be paid or recovered using the tax rates and
laws that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions
or events that result in an obligation to pay more, or a right to pay less,
tax in the future have occurred at the balance sheet date, with the
following exceptions:
•Provision is made for the tax that would arise on remittance of the
retained earnings of overseas subsidiaries only to the extent that, at
the balance sheet date, dividends have been accrued as receivable.
•Deferred tax assets are recognised only to the extent that the
Directors consider that it is more likely than not that there will be
suitable taxable profits from which the future reversal of the
underlying timing differences can be deducted.
Deferred tax is measured on a non-discounted basis at the tax rates
that are expected to apply in the periods in which timing differences
reverse, based on tax rates and laws enacted or substantively enacted
at the balance sheet date.
i) Subscriber acquisition costs
Subscriber acquisition costs, being the direct third party costs of
recruiting and retaining new customers, net of incentives from network
operators and provision for in-contract churn, are capitalised and
amortised over the minimum subscription period. Subscriber acquisition
costs for customers with no minimum subscription commitment are
taken to profit and loss as incurred.
j) Software and website development costs
The Group capitalises both internal and external infrastructure and
design costs incurred in the development of software for internal use
and in the development of the functionality of its website. These costs
are depreciated in accordance with the policy defined in note 1d.
k) Pensions
Contributions to defined contribution schemes are charged to the profit
and loss account as they become payable in accordance with the rules
of the scheme.
l) Foreign exchange
Material transactions in foreign currencies are hedged using forward
purchases or sales of the relevant currencies and are recognised in the
financial statements at the exchange rates thus obtained. Unhedged
transactions are recorded at the exchange rate on the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are
hedged, mainly using forward foreign exchange contracts to create
matching liabilities and assets. At the balance sheet date, both the monetary
assets and liabilities and the foreign currency hedges are retranslated at
rates prevailing at the balance sheet date and any differences are taken
to the profit and loss account. The results of overseas operations are
translated at the average foreign exchange rates for the period, and their
balance sheets are translated at the rates prevailing at the balance sheet
date. Exchange differences arising on translation of opening net assets
and results of overseas operations are dealt with through reserves. All
other exchange differences are included in the profit and loss account.
m) Employee incentive schemes
The Company operates a Save As You Earn scheme that allows for the
grant of share options at a discount to the market price at the date of
the grant. The Company has made use of the exemption under UITF 17
‘Employee Share Schemes’ not to recognise any compensation charge
in respect of these options.
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