Carphone Warehouse 2007 Annual Report Download - page 43

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39
Financial Statements
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 costs associated with the
investment.
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 taxation, are taken directly to
reserves, and recycled to the income statement when the investment is sold
or is determined to be impaired.
n) Interests in joint ventures
Interests in joint ventures are accounted for using the equity method. The
consolidated income statement includes the Group’s share of the pre-tax
profits and attributable taxation of the joint ventures based on their financial
statements for the financial period. In the consolidated balance sheet, the
Group’s interests in the joint ventures are shown as a non-current asset in the
balance sheet, representing the Group’s gross cash investment in the share
capital of the joint ventures, as well as any loans advanced, plus or minus the
Group’s share of profits or losses arising in the joint ventures.
o) Stock
Stock is stated at the lower of cost and net realisable value. Cost, net of
discounts, 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.
p) 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.
q) Loans and other borrowings
Loans and other borrowings represent bank overdrafts, uncommitted bank
loans, committed bank loans and loan notes issued by the Group.
Bank fees and legal costs associated with the securing of external financing
are capitalised and amortised over the term of the relevant facility. All other
borrowing costs are recognised in the income statement in the period in
which they are incurred.
r) Financial instruments
The Group uses forward currency contracts to reduce its exposure to
exchange rate fluctuations. Such contracts are measured at their fair value
based on contracted exchange rates. Hedge accounting as defined by IAS39
has been applied to the financial statements in the current period.
s) 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. Any differences between original claims
provisions and subsequent settlements are reflected in the income statement in
the relevant period.
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.
t) Use of critical accounting estimates and assumptions
Estimates and assumptions used in the preparation of the financial statements
are continually reviewed and revised as necessary. Whilst every effort is made
to ensure that such estimates and assumptions are reasonable, by their nature
they are uncertain, and as such changes in estimates and assumptions may
have a material impact in the financial statements.
The principal balances in the financial statements where changes in estimates
and assumptions may have a material impact are as follows:
Subscriber acquisition costs:
Estimates made in relation to future cash inflows, related cash outflows
and rates of in-contract churn are based on the best information available
at the balance sheet date, but such estimates may differ from actual results.
Recoverable amount of non-current assets:
All non-current assets, including goodwill and other intangible assets, are
reviewed for potential impairment using estimates of the future economic
benefits attributable to them. In the case of customer bases, such estimates
involve assumptions in relation to future customer margins and average
customer lives. Any estimates of future economic benefits made in relation
to non-current assets may differ from the benefits that ultimately arise, and
materially affect the recoverable value of the asset.
Trade and other receivables:
Provisions for irrecoverable receivables are based on extensive historic
evidence, and the best available information in relation to specific issues,
but are nevertheless inherently uncertain.