Marks and Spencer 2003 Annual Report Download - page 31

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1. Accounting policies
The financial statements have been prepared in accordance with applicable accounting standards in the United Kingdom.
A summary of the more important Group accounting policies is given below.
Accounting convention and basis of consolidation
The Group financial statements incorporate the financial statements of Marks and Spencer Group p.l.c. and all its subsidiaries
for the 52 weeks ended 29 March 2003.
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 SSAP 19,
‘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.
On 19 March 2002, the Company acquired 100% of the issued share capital of Marks and Spencer p.l.c. following the
implementation of a Scheme of Arrangement under Section 425 of the Companies Act 1985. This Scheme of Arrangement
was accounted for using merger accounting principles, although it did not satisfy all of the conditions required by Schedule 4
of the Act. In the opinion of the directors, the Scheme of Arrangement was a Group reconstruction rather than an acquisition
since the shareholders in the Company were the same as the former shareholders of Marks and Spencer p.l.c. and the rights
of each shareholder, relative to the others, were unchanged. Therefore, the directors considered that to record the Scheme
of Arrangement as an acquisition by the Company, attributing fair values to the assets and liabilities of the Group and
reflecting only the post Scheme of Arrangement results within the financial statements would fail to give a true and fair
view of the Group’s results and financial position.
Accordingly, having regard to the overriding requirement under Section 227(6) of the Companies Act 1985 for financial
statements to give a true and fair view of the Group’s results and financial position, the directors adopted merger accounting
principles in drawing up the financial statements. The directors consider that it is not practicable to quantify the effect of this
departure from the Companies Act 1985 requirements.
Turnover
Turnover comprises sales of goods to customers outside the Group less returns, VAT and sales taxes, together with interest
and other income attributable to the Financial Services operations.
Operating leases
Costs in respect of operating leases are charged on a straight line basis over the lease term.
Pensions
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.
Goodwill
Prior to 31 March 1998, goodwill arising on consolidation was written off to reserves in the year of acquisition.
As permitted by FRS 10, 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.
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.
•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 profit and loss account.
Notes to the financial statements