Marks and Spencer 1999 Annual Report Download - page 25

ANNUAL REPORT AND FIN ANCIAL STATEMENTS 1999
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MARKS AN D SPEN CER p.l.c.
ACCO UN TIN G PO LICIES
The financial statements are prepared in accordance with applicable
accounting standards in the United Kingdom.A summary of the more
important Group accounting policies, which have been modified by
the adoption of Financial Reporting Standard (FRS)10,‘Goodwill
and Intangible Fixed Assets’, FRS11,‘Impairment of Fixed Assets
and Goodwill’, FRS13,‘D erivatives and O ther Financial Instrument
D isclosures’ and FRS15,‘Tangible Fixed Assets’, is given below.
Further details regarding the change in accounting policy resulting
from the adoption of FRS15 are set out in note 11.
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
properties at 31 March 1988 and the valuation of investment properties.
Compliance with SSAP19,‘Accounting for Investment Properties’ requires
a departure from the requirements of the Companies Act 1985 relating
to the depreciation of investment properties as explained 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 2000.
CURRENT ASSET INVESTMENTS
Current asset investments are stated at market value.All profits and
losses from such investments are included in net interest income or
in Financial Services turnover as appropriate.
DEFERRED TAXATION
D eferred taxation is accounted for at anticipated tax rates on
differences arising from the inclusion of items of income and
expenditure 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 extent that it is likely that an
asset or liability will crystallise in the foreseeable future.
FIXED ASSETS
a Capitalised interest
Interest is not capitalised.
b Depreciation
D epreciation is provided to write off the cost or valuation of tangible
fixed assets, less residual value, by equal annual instalments as follows:
Land: not depreciated;
Freehold and leasehold buildings over 50 years: depreciated to their
estimated residual value over their estimated remaining economic lives
(see also c below).
Leasehold land and buildings under 50 years:over the remaining
period of the lease.
Fit out: 10-25 years according to the estimated life of the asset.
Fixtures, fittings and equipment:3-15 years according to the estimated
life of the asset.
(i) D epreciation is charged on all additions to or disposals of
depreciating assets in the year of purchase or disposal.
(ii) Any impairment in value is charged to the revaluation reserve
or the profit and loss account as appropriate.
c Land and buildings
The Company’s freehold and leasehold properties in the United
Kingdom were valued on the basis of open market value for existing
use in 1982.At 31 March 1988 those same properties (excluding
subsequent additions and adjusted for disposals) were revalued.
O n adoption of FRS15, the Group has followed the transitional
provisions to retain the book value of land and buildings which were
revalued in 1988, but not to adopt a policy of revaluation in the future.
These values are retained subject to the requirement to test assets
for impairment in accordance with FRS11.
d Investment properties
Investment properties are revalued annually and included in the
balance sheet at their open market value. In accordance with SSAP19,
no depreciation is provided in respect of investment properties.
This represents a departure from the Companies Act 1985
requirements concerning the depreciation of fixed 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.
LONG-TERM ASSURANCE BUSINESS
The value of the long-term assurance business consists of the present
value of surpluses expected 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.
DERIVATIVE FINANCIAL INSTRUMEN TS
The Group uses derivative financial instruments to manage its
exposures to fluctuations in foreign currency exchange rates and
interest rates. D erivative instruments utilised by the Group include
interest rate and currency swaps, forward rate agreements and
forward currency contracts.Amounts payable or receivable in respect
of interest rate swaps are recognised as adjustments to net interest
income over the period of the contract. Forward currency contracts
are accounted for as hedges, with the instrument’s impact on profit
deferred until the underlying transaction is recognised in the profit
and loss account.
FOREIGN CURRENCIES
The results of overseas subsidiaries are translated at the weighted
average of monthly exchange rates for sales and profits.The balance
sheets of overseas subsidiaries are translated at year-end exchange
rates.The resulting exchange differences are dealt with through
reserves and reported in the consolidated statement of total
recognised gains and losses.
Transactions denominated in foreign currencies are translated at
the exchange rate at the date of the transaction. Foreign currency
assets and liabilities held at the year-end are translated at year-end
exchange rates or the exchange rate of a related forward exchange
contract where appropriate.The resulting exchange gain or loss is
dealt with in the profit and loss account.
GOODW ILL
Prior to 31 March 1998, goodwill arising on consolidation was written
off to reserves in the year of acquisition.As permitted by FRS10, this
goodwill has not been reinstated in the balance sheet and remains
written off to reserves. Goodwill arising on subsequent acquisitions
will be capitalised and amortised over its useful economic life.
The profit or loss arising on the sale of a previously acquired
business includes the attributable goodwill.
PEN SION CONTRIBUTIONS
Funded pension plans are in place for the Group’s UKemployees and
the majority of staff overseas.The assets of these pension plans are
managed by third party 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 service lives of the employees.
STOCKS
Stocks are valued at the lower of cost and net realisable value using
the retail method.