Marks and Spencer 2000 Annual Report Download - page 26

Derivative financial instruments
The Group uses derivative financial instruments to manage
its exposures to fluctuations in foreign currency exchange
rates and interest rates. Derivative 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 international 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.
Goodwill
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 is
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.
Pension contributions
Funded pension plans are in place for the Group’s UK
employees and the majority of employees 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.
24 Marks and Spencer p.l.c.
Accounting policies