Carphone Warehouse 2013 Annual Report Download - page 60

CARPHONE WAREHOUSE GROUP PLC ANNUAL REPORT 201358
NOTES TO THE FINANCIAL STATEMENTS continued
1 ACCOUNTING POLICIES continued
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, the costs of onerous leases and other onerous contracts, 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.
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) HEADLINE RESULTS
Headline results are stated before any exceptional items that are considered to be one-off and so material that they require separate
disclosure to avoid distortion of underlying performance, the results of discontinued businesses within the Group’s joint ventures,
andtheamortisation of acquisition intangibles.
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.
The principal items in the financial statements where changes in estimates and assumptions may have a material impact are as follows:
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. 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. Refer to notes 11, 12 and 13.
trade and other receivaBles
Provisions for irrecoverable receivables are based on extensive historical evidence and the best available information in relation
tospecific issues, but are unavoidably dependent on future events.
revenue recoGnition
Commission receivable within Best Buy Europe depends for certain transactions on customer behaviour after the point of sale. Assumptions
are therefore required, particularly in relation to levels of customer default within the contract period, expected levels of customer spend,
and customer behaviour beyond the initial contract period. Such assumptions are based on extensive historical evidence, and provision
ismade for the risk of potential changes in customer behaviour, but they are nonetheless inherently uncertain. Changes in estimates
recognised as an increase to revenue may be made, where for example more reliable information is available, and any such changes
are required to be recognised in the income statement. Changes of estimates during the year ended 31 March 2013 in relation to
commission receivable after the initial contract term for sales originating in previous years totalled £21.0m (2012: £17.0m). Total
ongoing revenues receivable within Best Buy Europe are £550.0m (2012: £474.0m).
current taxation
The complex nature of tax legislation across the tax jurisdictions in which the Group and its joint ventures operate necessitates the use
ofmany estimates and assumptions, where the outcome may differ from that assumed. Refer to note 7.