Marks and Spencer 2006 Annual Report Download - page 95

93Marks and Spencer Group plc
33 ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS continued
c) IAS 10 – ‘Events after the Balance Sheet Date’
Under UK GAAP, dividends are recognised in the period to which they relate. IAS 10 requires that dividends declared after the
balance sheet date should not be recognised as a liability at that balance sheet date as the liability does not represent a present
obligation as defined by IAS 37 – ‘Provisions, Contingent Liabilities, and Contingent Assets’. Accordingly the final dividends for
2003/04 (£160.7m) and 2004/05 (£124.3m) are derecognised in the balance sheets for April 2004 and April 2005 respectively.
d) IAS 17 – ‘Leases – Treatment of Leasehold Land’
The Group previously recognised finance leases under the recognition criteria set out in SSAP 21. IAS 17 requires the land and
building elements of property leases to be considered separately, with leasehold land normally being treated as an operating lease.
As a consequence, payments made to acquire leasehold land, previously treated as fixed assets, have been recategorised as
prepaid leases and amortised over the life of the lease. In addition, the revaluation previously attributed to the land element has been
derecognised.
e) IAS 17 – ‘Leases – Finance Leases’
Also under the provisions of IAS 17, the building elements of certain property leases, classified as operating leases under UK GAAP,
have been reclassified as finance leases. The adjustments are to include the fair value of these leased buildings within fixed assets
and to set up the related obligation, net of finance charges, in respect of future periods, within creditors.
f) IAS 17 ‘Leases – Lease Incentives’
Under UK GAAP, leasehold incentives received on entering into property leases were recognised as deferred income on the balance
sheet and amortised to the profit and loss account over the period to the first rent review. Under IAS 17, these incentives have to be
amortised over the term of the lease. Consequently, as the term of the lease is longer than the period to the first rent review,
amounts previously amortised to the profit and loss account are reinstated on the balance sheet as deferred income and released
over the term of the lease.
g) IAS 17 – ‘Leases – Fixed Rental Uplifts’
The Group has a number of leases that contain predetermined, fixed rental uplifts. Under IAS 17, it is necessary to account for these
leases such that the predetermined, fixed rental payments are recognised on a straight-line basis over the life of the lease. Under UK
GAAP, the Group accounted for these property lease rentals such that the increases were charged in the year that they arose.
h) IAS 19 – ‘Employee Benefits’
Previously no provision was made for holiday pay. Under IAS 19 – ‘Employee Benefits’ the expected cost of compensated short-
term absences (e.g. holidays) should be recognised when employees render the service that increases their entitlement. As a result,
an accrual has been made for holidays earned but not taken.
i) IAS 38 – ‘Software Assets’
The cost of developing software used to be written off as incurred. Under IAS 38 – ‘Intangible Assets’ there is a requirement to
capitalise internally generated intangible assets provided certain recognition criteria are met. Results have been adjusted to reflect
the capitalisation and subsequent amortisation of costs that meet the criteria. As a result expenses previously charged to the profit
and loss account have been brought onto the balance sheet as intangible software assets and amortised over their estimated useful
lives.
j) IAS 38 – ‘Goodwill’
Goodwill used to be capitalised and amortised over its useful economic life. Under IAS 38 – ‘Intangible Assets’ there is a requirement
to separately identify brands and other intangibles acquired rather than include these as part of goodwill. Intangible assets, other
than goodwill, are amortised over their useful lives. Goodwill, which is considered to have an indefinite life, is subject to an annual
impairment review. As a result, the goodwill recognised under UK GAAP on the acquisition of per una of £125.5m has been split
between brand (£80m) and goodwill (£45.5m). The goodwill amortisation under UK GAAP has been reversed but the brand has
been amortised as required under IFRS.
Cash flow statement
The cash flows reported under IFRS relate to movements in cash and cash equivalents (defined as short-term highly liquid
investments that are readily convertible into known amounts of cash and subject to insignificant risk of changes in value). Under UK
GAAP, only the movement in cash (defined as cash in hand and deposits repayable on demand, less overdrafts) were reported in the
cash flow statement. As a result of adopting IFRS, a £55.7m movement in cash equivalents in the year to 2 April 2005 is now
reported as a cash flow movement rather than as movement in financial investment.