Marks and Spencer 1998 Annual Report Download - page 53

The financial statements are prepared in accordance with
applicable accounting standards in the United Kingdom.
A summary of the more impor tant Group accounting policies,
which are applied consistently, is given below.
BASIS OF ACCOUNTING
The financial statements are drawn up on the historical cost basis
of accounting, modified to include the valuation of certain United
Kingdom proper ties at 31 March 1988 and the valuation of
investment proper ties. Compliance with SSAP19 ÔA ccounting for
investment proper tiesÕ requires a depar ture from the
requirements of the Companies Act 1985 relating to the
depreciation of investment properties as ex plained below.
BASIS OF CONSOLIDATION
The Group financial statements incorporate the financial
statements of Marks and Spencer p.l.c. and all its subsidiaries for
the year ended 31 March 1998.
CURRENT ASSET INVESTMENTS
Current asset investments are stated at market value. A ll profits
and losses from such investments are included in net interest
income or in Financial Ser vices turnover as appropriate.
DEFERRED TAXATION
Deferred tax ation is accounted for at anticipated tax rates on
differences arising from the inclusion of items of income and
ex penditure in taxation computations in periods different from
those in which they are included in the financial statements.
A deferred tax asset or provision is established to the ex tent
that it is likely that an asset or liability will crystallise in the
foreseeable future.
FIXED ASSETS
a Capitalised interest
Interest is not capitalised in the cost of land and buildings.
b Depreciation
Depreciation is provided to write off the cost or valuation of
tangible fix ed assets, less residual value, by equal annual
instalments at the following rates:
Freehold and leasehold land and buildings over 50 years: 1% or nil
(see (ii) and c below);
Leasehold land and buildings under 50 years: over the remaining
period of the lease;
Fix tures, fittings and equipment: 4% to 331
/3% according to the
estimated life of the asset.
(i) Depreciation is charged on all additions to depreciating assets
in the year of purchase.
(ii) Given that the lives of the GroupÕs freehold and long leasehold
properties are so long and that they are maintained to
such a
high standard, it is the opinion of the directors that in most
instances the residual values would be sufficiently high to make
any depreciation charge immaterial. The directors have based
their estimates of residual values on prices prevailing at the time
of acquisition or revaluation. Where residual values are lower than
cost or valuation, depreciation is charged to the profit and loss
account. Any permanent diminution in value is also charged to
the revaluation reserve or the profit and loss account as
appropriate.
c Investment properties
Investment properties are revalued annually and included in the
balance sheet at their open market value. In accordance with
SSA P 19, no depreciation is provided in respect of investment
properties. This represents a departure from the Companies Act
1985 requirements concerning the depreciation of fix ed assets.
These properties are held for investment and the directors
consider that the adoption of this policy is necessary to give a
true and fair view.
d Repairs and renewals
Expenditure on repairs, renewals and minor items of equipment is
written off in the year in which it is incurred.
Cer tain major items of fix ed plant and structure are incorporated
within the cost of the buildings when purchased. When replaced,
these are fully ex pensed as repairs and renewals in the profit and
loss account.
LONG-TERM ASSURANCE BUSINESS
The value of the long-term assurance business consists of the
present value of surpluses ex pected to emerge in the future from
business currently in force, and this value is included in
prepayments and accrued income. In determining their value,
these surpluses are discounted at a risk-adjusted, post-tax rate.
Changes in the value are included in the profit and loss account
grossed up at the standard rate of corporation tax applicable to
insurance companies.
OPERATING LEASES
Costs in respect of operating leases are charged on a straight
line basis over the lease term.
FOREIGN CURRENCIES
The results of overseas subsidiaries are translated at the
weighted average of monthly ex change rates for sales and profits.
The balance sheets of overseas subsidiaries are translated at
year-end ex change rates. The resulting ex change differences are
dealt with through reser ves and reported in the consolidated
statement of total recognised gains and losses.
Transactions denominated in foreign currencies are translated at
the ex change rate at the date of the transaction. Foreign
currency assets and liabilities held at the year-end are translated
at year-end ex change rates or the ex change rate of a related
for ward ex change contract where appropriate. The resulting
ex change gain or loss is dealt with in the profit and loss account.
GOODWILL
Goodwill arising on consolidation is written off to reser ves on
acquisition. Goodwill attributable to businesses disposed of is
written back to reserves brought for ward, and charged through
the profit and loss account.
PENSION CONTRIBUTIONS
Funded pension plans are in place for the GroupÕs UK employees
and the majority of staff overseas. The assets of these pension
plans are managed by third par ty investment managers and are
held separately in trust.
Regular valuations are prepared by independent professionally
qualified actuaries. These determine the level of contributions
required to fund the benefits set out in the rules of the plans
and to allow for the periodic increase of pensions in payment.
The contributions and any variations from regular cost arising
from the actuarial valuations are charged or credited to profits
on a systematic basis over the estimated remaining ser vice lives
of the employees.
SCRIP DIVIDENDS
The amount of dividends taken as shares instead of in cash under
the scrip dividend scheme is added back to reserves. The nominal
value of shares issued under the scheme is funded out of the
share premium account.
STOCKS
Stocks are valued at the lower of cost and net realisable value
using the retail method.
ACCO UN TIN G PO LICIES
MA RKS A ND SPENCER p.l.c. 51