Marks and Spencer 2003 Annual Report Download - page 32

30 Marks and Spencer Gro up p.l.c.
Notes to the financial statements
1. Accounting policies continued
c Land and buildings
The Group’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 FRS 15, 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 FRS 11.
d Investment properties
Investment properties are revalued annually and included in the balance sheet at their open market value. In accordance
with SSAP 19, 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.
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.
Stocks
Stocks are valued at the lower of cost and net realisable value using the retail method. All stocks are finished goods.
Loans and advances to customers
Loans and advances are classified as impaired when an instalment is in excess of 30 days overdue. Specific provisions
are made against all advances identified as impaired at the balance sheet date to the extent that, in the opinion of the
directors, recovery is doubtful. Specific provisions against such exposures are calculated using a bad debt provision model,
which uses the last two years credit history to produce estimates of the likely level of asset impairment. General provisions
relate to latent bad and doubtful debts which are present in any lending portfolio but have not been specifically identified.
General provisions are calculated using the same bad debt provision model and an evaluation of current economic and
political factors.
Loans and advances are written off when there is no realistic prospect of recovery, based on a predetermined set of
criteria. Account balances written off include those where no payment has been received for a period of 12 months since
the account was identified as doubtful, and in other situations such as bankruptcy, insolvency or fraud.
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.
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, 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.
Deferred taxation
Deferred taxation is accounted for on an undiscounted basis at expected tax rates on all 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 is only recognised when it is more likely than not that the asset
will be recoverable in the foreseeable future out of suitable taxable profits from which the underlying timing differences
can be deducted.