Carphone Warehouse 2006 Annual Report Download - page 45

n) 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.
o) Cash and cash equivalents
Cash and cash equivalents represent cash on hand, demand deposits and
short-term, highly liquid investments that are readily convertible to known
amounts of cash.
p) Loans and other borrowings
Loans and other borrowings represent bank overdrafts, uncommitted bank
loans, committed loans and loan notes issued by the Group.
Bank fees and legal costs associated with the securing of external financing
are capitalised as prepayments and amortised over the term of the relevant
loan. All other borrowing costs are recognised in the income statement in the
period in which they are incurred.
q) Financial instruments
The Group uses forward currency contracts to reduce its exposure to exchange
rate fluctuations. From 3 April 2005, such contracts are measured at their fair
value based on contracted exchange rates. Hedge accounting as defined by
IAS39 has not been applied to the financial statements in either period and
changes in fair value are recognised in the income statement.
r) Provisions
Provisions are recognised when the Group has a legal or constructive obligation
as a result of past events and it is probable that an outflow of resources will
be required to settle the obligation and a reliable estimate can be made of the
amount of the obligation. Provisions are discounted where the time value of
money is considered to be material.
Provisions are categorised as follows:
Insurance:
Full provision is made for the estimated cost of all claims notified but not
settled at the balance sheet date. Provision is also made for the estimated
cost of claims incurred but not reported at the balance sheet date, based
on historic experience of the value of such claims.
Reorganisation:
Reorganisation provisions are only recognised where plans are demonstrably
committed and where appropriate communication to those affected has been
undertaken at the balance sheet date. Provisions are not recognised in
respect of future operating losses.
Sales:
Sales provisions relate to “cash-back” and similar promotions, product
warranties, product returns, and network operator performance penalties.
The anticipated costs of these items are assessed by reference to historic
trends and any other information that is considered to be relevant.
Other:
Other provisions relate to dilapidations and similar property costs, and all
other provisions, principally being the anticipated costs of unresolved tax
issues and legal disputes, and costs associated with onerous contracts.
All such provisions are assessed by reference to the best available
information at the balance sheet date.
s) Use of critical accounting estimates and assumptions
Estimates and assumptions used in the preparation of the financial statements
costs for customers with no minimum subscription commitment are reflected
in operating expenses as incurred.
Software and licenses:
Software and licenses include internal infrastructure and design costs
incurred in the development of software for internal use. Internally generated
software is recognised as an intangible asset only if it can be separately
identified, it is probable that the asset will generate future economic benefits,
and the development cost can be measured reliably. Where these conditions
are not met, development expenditure is recognised as an expense in the
period in which it is incurred. Software and licenses are amortised on a
straight-line basis over their estimated useful economic lives of up to 8 years.
Key money:
Key money paid to enter a property is stated at cost, net of amortisation and
any provision for impairment. Amortisation is provided on key money at rates
calculated to write off the cost, less estimated residual value, on a straight-
line basis over 10 years or the lease term if less.
Acquisition intangibles:
Acquired intangible assets (acquisition intangibles), such as customer bases
acquired through a business combination, are capitalised separately from
goodwill and amortised over their useful lives of up to 5 years on a straight-
line basis. The value attributed to such assets is based on the future
economic benefit that is expected to be derived from them.
k) Property, plant and equipment
Property, plant and equipment is stated at cost, net of depreciation and any
provision for impairment. Depreciation is provided on all property, plant and
equipment 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, network
and office equipment 12.5-50% per annum
Fixtures and fittings 20-25% per annum
Motor vehicles 25% per annum
l) Recoverable amount of non-current assets
At each reporting date, the Group assesses whether there is any indication that
an asset may be impaired. Where an indicator of impairment exists, the Group
makes a formal estimate of the asset’s recoverable amount. Where the carrying
amount of an asset exceeds its recoverable amount, the asset is considered to
be impaired and is written down through an accelerated amortisation charge to
its recoverable amount. The recoverable amount is the higher of an asset’s or
CGU’s fair value less costs to sell and its value in use, and is determined for an
individual asset, unless the asset does not generate cash flows that are largely
independent of those from other assets or groups of assets.
m) Investments
All investments are initially recognised at cost, being the fair value of the
consideration given and including acquisition charges associated with
the investment.
The Group adopted IAS32 ‘Financial Instruments: Disclosure and Presentation’
and IAS39 ‘Financial Instruments: Recognition and Measurement’ from
3 April 2005, as a result of which the Group’s investments are categorised
as available-for-sale and recorded at fair value from this date.
Changes in fair value, together with any related deferred tax, are taken directly
to reserves, and recycled to the income statement when the investment is sold
or is determined to be impaired.
Notes to the Financial Statements continued www.cpwplc.com 41
Financial Statements