Holiday Inn 2004 Annual Report Download - page 70

Under UK GAAP, the impairment of tangible fixed assets
is measured by reference to discounted cash flows. Under
US GAAP, if the carrying value of assets is supported by
undiscounted cash flows, there is no impairment.
The Group recognises a profit on disposal of fixed assets
provided substantially all the risks and rewards of ownership
have transferred. For the purposes of US GAAP, the Group
would account for sales of real estate in accordance with FAS 66
‘Accounting for Sales of Real Estate’. If there is significant
continuing involvement with the property, any gain on sale is
deferred and is recognised over the life of the long-term
management contract retained on the property.
STAFF COSTS
The Group charges against earnings the cost of shares acquired
to settle awards under certain incentive schemes. The charge is
based on an apportionment of the cost of shares over the period
of the scheme. Prior to Separation, for the purposes of US GAAP,
the Group accounted for those plans under the recognition and
measurement provisions of Accounting Principles Board (APB)
Opinion 25 ‘Accounting for Stock Issued to Employees’ and
related interpretations. Under APB 25 these awards would be
accounted for as variable plans and the charge would be based
on the intrinsic value of the shares using the share price at the
balance sheet date. Effective from the date of Separation, the
Group adopted the preferable fair value recognition provisions of
FAS 123 ‘Accounting for Stock-Based Compensation’. The Group
selected the modified prospective method of adoption described
in FAS 148 ‘Accounting for Stock-Based Compensation –
Transition and Disclosure’. Compensation costs recognised since
Separation are the same as those which would have been
recognised had the fair value method of FAS 123 been applied
from its original effective date. In accordance with the modified
prospective method of adoption, results for years prior
to 2002 have not been restated.
The Group provides certain compensation arrangements in the
United States through a rabbi trust. Under UK GAAP, the net
deficit is recorded as a provision in the accounts and the net
change in the underlying value of the assets and liabilities is
recorded as a charge (or credit) to the profit and loss account.
Under US GAAP, the marketable securities held by the rabbi
trust would be accounted for in accordance with FAS 115
‘Accounting for certain investments in Debt and Equity Securities’.
The trust is shown gross in the balance sheet. The marketable
securities held by the trust are recorded at market value and
unrealised gains and losses are reported in other comprehensive
income except for other than temporary which are recognised in
the profit and loss account.
SEVERANCE AND RESTRUCTURING COSTS
Under UK GAAP, severance costs are provided for in the financial
statements if it is determined that a constructive or legal obligation
has arisen from a restructuring programme where it is probable
that it will result in the outflow of economic benefits and the costs
involved can be estimated with reasonable accuracy. Under US
GAAP, severance costs are recognised over the remaining service
period to termination. Accordingly, timing differences between UK
GAAP and US GAAP arise on the recognition of such costs.
DEFERRED TAXATION
The Group provides for deferred taxation in respect of timing
differences, subject to certain exceptions, between the recognition
of gains and losses in the financial statements and for tax
purposes. Timing differences recognised, include accelerated
capital allowances, unrelieved tax losses and short-term timing
differences. Under US GAAP, deferred taxation would be
computed on all temporary differences between the tax bases and
book values of assets and liabilities which will result in taxable or
tax deductible amounts arising in future years. Deferred taxation
assets under UK GAAP and US GAAP are recognised only to the
extent that it is more likely than not that they will be realised.
FIXED ASSET INVESTMENTS
Fixed asset investments are stated at cost less any provision
for diminution in value. Under US GAAP, these investments are
recorded at market value and unrealised gains and losses are
reported in other comprehensive income except for other than
temporary which are recognised in the profit and loss account.
DERIVATIVE INSTRUMENTS AND HEDGING
The Group enters into derivative instruments to limit its exposure
to interest rate and foreign exchange risk. Under UK GAAP, these
instruments are measured at cost and accounted for as hedges,
whereby gains and losses are deferred until the underlying
transaction occurs. Under US GAAP, all derivative instruments
(including those embedded in other contracts) are recognised on
the balance sheet at their fair values. Changes in fair value would
be recognised in net income unless specific hedge criteria are
met. If a derivative qualifies for hedge accounting as defined
under US GAAP, changes in fair value are recognised periodically
in net income or in shareholders’ equity as a component of other
comprehensive income depending on whether the derivative
qualifies as a fair value or cash flow hedge. Substantially all
derivatives held by the Group during the year did not qualify
for hedge accounting under US GAAP.
US GAAP information
68 InterContinental Hotels Group 2004