Carphone Warehouse 2011 Annual Report Download - page 57

Carphone Warehouse Group plc Annual Report 2011 53
FINANCIAL STATEMENTS FINANCIAL STATEMENTS
o) Stock
Stock is stated at the lower of cost and net realisable value.
Cost, net of discounts and volume bonuses from product
suppliers (see note 1d), 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 represent loans to and from related parties, while other
borrowings in the balance sheets of joint ventures represent
committed and uncommitted bank loans, bank overdrafts, and
loans from shareholders other than the Group.
Bank fees and legal costs associated with the securing of
external financing are ordinarily capitalised and amortised over
the term of the relevant facility. Borrowing costs associated with
qualifying assets are included in the cost of the asset. All other
borrowing costs are recognised in the income statement in the
period in which they are incurred.
r) Provisions
Provisions are recognised when a legal or constructive
obligation exists 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 in the Group relate primarily to warranties provided
in relation to the Best Buy Europe Joint Venture Transaction.
Provisions in Best Buy Europe and Virgin Mobile France include
the following categories:
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 historical trends and any other
information that is considered to be relevant.
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 historical
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 year.
Reorganisation
Reorganisation provisions relate principally to redundancy
costs and 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.
k) Property, plant and equipment
Property, plant and equipment, principally for the Group
comprising investment property (property held to earn rental
income and/or for capital appreciation) is stated at cost, net of
depreciation and any provision for impairment. Depreciation is
provided on all property, plant and equipment, except for land,
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:
Investment properties: 2% per annum
Short leasehold costs: 10% per annum or the lease term if less
Network equipment
and computer hardware: 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
Investments, other than subsidiaries and joint ventures,
are initially recognised at cost, being the fair value of the
consideration given plus any transaction costs associated with
the acquisition. Investments are categorised as available-for-
sale and are then recorded at fair value. 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 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 post-tax profits or losses of the joint
ventures based on their financial statements for the year. In
the consolidated balance sheet, the Group’s interests in joint
ventures are shown as a non-current asset in the balance sheet,
representing the Group’s investment in the share capital of the
joint ventures, as adjusted by post-acquisition changes in the
Group’s share of the net assets or liabilities less provision for
any impairment. Any associated goodwill is included within the
carrying value of the investment and is assessed for impairment
as part of that investment.
Where a joint venture has net liabilities, any loans advanced to
it are included in the Group’s equity-accounted investment in it.
Where a joint venture has net assets, any loans advanced to it
are shown separately in the balance sheet, as a receivable to
the Group.