Marks and Spencer 2004 Annual Report Download - page 33

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Notes to the financial statements
1. ACCOUNTING POLICIES
Basis of preparation
The financial statements have been prepared in accordance
with applicable accounting standards in the United Kingdom.
The Group has fully adopted the following new accounting
standards, or amendments to existing standards issued by
the UK Accounting Standards Board:
•FRS 17 – ‘Retirement Benefits’ (see note 11);
•Application Note G of FRS 5 – ‘Revenue Recognition’
(see note 2); and
•UITF 38 – ‘Accounting for ESOP Trusts’ (see note 14).
The impact of adopting these standards has been reflected
throughout the financial statements. Prior year comparatives
have been restated where appropriate. A summary of the
more important Group accounting policies, as amended by
the adoption of the above, is given below.
Accounting convention and basis of consolidation
The Group financial statements incorporate the financial
statements of Marks and Spencer Group plc and all its
subsidiaries for the 53 weeks ended 3 April 2004.
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 plc 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 plc 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
Retail turnover comprises sales of goods to customers outside
the Group less an appropriate deduction for actual and
expected returns, discounts and loyalty scheme voucher costs,
and is stated net of Value Added Tax and other sales taxes.
Financial Services turnover comprises interest receivable
from customers together with other income attributable to
the Financial Services operation.
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.
Following the full adoption of FRS 17, the regular service
cost of providing retirement benefits to employees during
the year, together with the cost of any benefits relating to
past service is charged to operating profit in the year.
A credit representing the expected return on the assets of the
retirement benefit schemes during the year is included within
other finance income. This is based on the market value of
the assets of the schemes at the start of the financial year.
A charge within other finance charges representing the
expected increase in the liabilities of the retirement benefit
schemes during the year is included within net interest. This
arises from the liabilities of the schemes being one year
closer to payment.
The difference between the market value of assets and the
present value of accrued pension liabilities is shown as an
asset or liability in the balance sheet net of deferred tax.
Differences between actual and expected returns on assets
during the year are recognised in the statement of total
recognised gains and losses in the year, together with
differences arising from changes in assumptions.
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.