Marks and Spencer 2007 Annual Report Download - page 61

11 AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS continued
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated or exercised, or no longer qualifies
for hedge accounting. At that time, any cumulative gain or loss
on the hedging instrument recognised in equity is retained in
equity until the forecast transaction occurs. If a hedged
transaction is no longer expected to occur, the net cumulative
gain or loss recognised in equity is transferred to net profit or
loss for the period.
The Group does not use derivatives to hedge income statement
translation exposures.
CCrriittiiccaall aaccccoouunnttiinngg eessttiimmaatteess aanndd jjuuddggeemmeennttss
The preparation of consolidated financial statements requires
the Group to make estimates and assumptions that affect the
application of policies and reported amounts. Estimates and
judgements are continually evaluated and are based on
historical experience and other factors including expectations of
future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
The estimates and assumptions which have a significant risk of
causing a material adjustment to the carrying amount of assets
and liabilities are discussed below:
A Impairment of goodwill
The Group is required to test, at least annually, whether
goodwill has suffered any impairment. The recoverable
amount is determined based on value in use calculations.
The use of this method requires the estimation of future
cash flows and the choice of a suitable discount rate in
order to calculate the present value of these cash flows.
Actual outcomes could vary.
B Impairment of property, plant and equipment
Property, plant and equipment are reviewed for impairment
if events or changes in circumstances indicate that the
carrying amount may not be recoverable. When a review
for impairment is conducted, the recoverable amount is
determined based on value in use calculations prepared
on the basis of management’s assumptions and estimates.
C Depreciation of property, plant and equipment
Depreciation is provided so as to write down the assets
to their residual values over their estimated useful lives as
set out above. The selection of these residual values and
estimated lives requires the exercise of management
judgement.
D Post retirement benefits
The determination of the pension cost and defined benefit
obligation of the Group’s defined benefit pension schemes
depends on the selection of certain assumptions which
include the discount rate, inflation rate, salary growth,
mortality and expected return on scheme assets. Differences
arising from actual experiences or future changes in
assumptions will be reflected in subsequent periods. See
note 11 for further details.
E Refunds and loyalty scheme accruals
Accruals for sales returns and loyalty scheme redemption
are estimated on the basis of historical returns and
redemptions and these are recorded so as to allocate them
to the same period as the original revenue is recorded.
These provisions are reviewed regularly and updated to
reflect management’s latest best estimates, however, actual
returns and redemptions could vary from these estimates.
NNoonn--GGAAAAPP ppeerrffoor
rmmaannccee mmeeaassuurreess
The directors believe that the ‘adjusted’ profit and earnings per
share measures provide additional useful information for
shareholders on the underlying performance of the business.
These measures are consistent with how business performance
is measured internally. The adjusted profit before tax measure is
not a recognised profit measure under IFRS and may not be
directly comparable with ‘adjusted’ profit measures used by
other companies. The adjustments made to reported profit
before tax are to exclude the following:
• exceptional income and charges. These are largely
one-off in nature and therefore create volatility in reported
earnings; and
• profits and losses on the disposal of properties. These can
vary significantly from year to year, again creating volatility
in reported earnings.
wwwwww..mmaarrkkssaannddssppeenncceerr..ccoomm//aannnnuuaallrreeppoorrtt22000077MARKS AND SPENCER GROUP PLC 5599
Executive Team Your Board Financial
Review Governance Financials
Shareholder Information