Marks and Spencer 2001 Annual Report Download - page 23

The financial statements are prepared in accordance with
applicable accounting standards in the United Kingdom.
A summary of the more important Group accounting policies,
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 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 2001.
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
Deferred taxation is accounted for at expected 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
Depreciation 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.
Depreciation is charged on all additions to or disposals of
depreciating assets in the year of purchase or disposal.
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. On adoption of FRS15, the Group
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 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 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.
Accounting policies
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