Carphone Warehouse 2015 Annual Report Download - page 95

Dixons Carphone plc Annual Report and Accounts 2014/15
Financial statements
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Judgement is required to ensure that income is only recognised
when all performance obligations within the contract have been
fulfilled and the income is expected to be collected.
Supplier funding amounts that have been recognised and
not invoiced are shown within accrued income on the
balance sheet.
Inventory valuation
Inventories are valued at the lower cost and net realisable
value. Cost comprises direct purchase cost and those
overheads that have been incurred in bringing the inventories
to their present location and condition. Net realisable value
represents the estimated selling price less all estimated and
directly attributable costs of completion and costs to be
incurred in marketing, selling and distribution. Net realisable
value includes, where necessary, provisions for slow moving
and damaged inventory. The provision represents the
difference between the cost of stock and its estimated net
realisable value, based on ageing and other factors.
Calculation of these provisions requires judgements to be
made which include forecast consumer demand, the
promotional, competitive and economic environment and
inventory loss trends.
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. The
methodology used in assessing the carrying value of goodwill
is set out in note 9 and in respect of intangible assets and
property, plant & equipment in note 1n).
Acquisition accounting
Accounting for the Merger (2013/14: the CPW Europe
Acquisition) involved the use of assumptions in relation to the
future cash flows associated with acquisition intangibles, and
the use of valuation techniques in order to arrive at the fair
value of the other non-current assets and liabilities acquired.
The assumptions applied were based on the best information
available to management and valuation techniques were
supported by third party valuation experts. Nevertheless, the
actual performance of these assets and liabilities may differ
from the valuations derived through this exercise.
Discontinued operations and assets held for sale
The disposal of businesses and the recognition of assets held
for sale at the lower of cost and fair value less costs to sell will
often require judgement and estimation in relation to the value
of expected future consideration and costs associated with the
disposal. Such estimation will be based on the best information
available up to the approval of the financial statements, but
nevertheless the final outcomes may vary from that assumed.
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.
Taxation
Tax laws that apply to the Group’s businesses may be
amended by the relevant authorities, for example as a result of
changes in fiscal circumstances or priorities. Such potential
amendments and their application to the Group are monitored
regularly and the requirement for recognition of any liabilities
assessed where necessary. The Group is subject to income
taxes in a number of different jurisdictions and judgement is
required in determining the appropriate provision for
transactions where the ultimate tax determination is uncertain.
In such circumstances, the Group recognises liabilities for
anticipated taxes due based on best information available and
where the anticipated liability is probable and estimable. Where
the final outcome of such matters differs from the amounts
initially recorded, any differences will impact the income tax
and deferred tax provisions in the year to which such
determination is made. Where the potential liabilities are not
considered probable, the amount at risk is disclosed unless an
adverse outcome is considered remote.
Deferred tax is recognised on taxable losses based on the
expected ability to utilise such losses. This ability takes
account of the business plans for the relevant companies,
potential uncertainties around the longer term aspects of these
business plans, any expiry of taxable benefits and potential
future volatility in the local tax regimes.
Provisions
The Group’s provisions are based on the best information
available to management at the balance sheet date. However,
the future costs assumed are inevitably only estimates, which
may differ from those ultimately incurred.
Defined benefit pension schemes
The surplus or deficit in the UK defined benefit pension
scheme that is recognised through the consolidated statement
of comprehensive income and expense is subject to a number
of assumptions and uncertainties. The calculated liabilities of
the scheme are based on assumptions regarding salary
increases, inflation rates, discount rates and member longevity.
Such assumptions are based on actuarial advice and are
benchmarked against similar pension schemes.