Marks and Spencer 2008 Annual Report Download - page 63

1 Accounting policies continued
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 include a property partnership
interest and various equities and bonds. The equities and
bonds are managed by third-party investment managers
and are held separately in trust.
Regular valuations are prepared by independent professionally
qualified actuaries in respect of the defined benefit schemes.
These determine the level of contribution required to fund the
benefits set out in the rules of the plans and allow for the
periodic increase of pensions in payment. The 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
interest. This is based on the market value of the assets of the
schemes at the start of the financial year.
A charge is also made within interest representing the
expected increase in the liabilities of the retirement benefit
schemes during the year. This arises from the liabilities of the
schemes being one year closer to payment.
The difference between the market value of the assets and
the present value of accrued pension liabilities is shown as
an asset or liability in the balance sheet. Assets are only
recognised if they are recoverable.
Actuarial gains and losses are recognised immediately in
the statement of recognised income and expense.
Payments to defined contribution retirement benefit schemes
are charged as an expense as they fall due.
Intangible assets
A Goodwill
Goodwill arising on consolidation represents the excess of the
cost of acquisitions over the Group’s interest in the fair value of
the identifiable assets and liabilities (including intangible assets)
of the acquired entity at the date of the acquisition. Goodwill is
recognised as an asset and assessed for impairment at least
annually. Any impairment is recognised immediately in the
income statement.
Upon disposal of a subsidiary the attributable goodwill is
included in the calculation of the profit or loss arising on
disposal. Goodwill written off to reserves under UK GAAP prior
to 31 March 1998 has not been reinstated and is not included
in determining any subsequent profit or loss on disposal.
B Brands
Acquired brand values are held on the balance sheet at cost
and amortised on a straight-line basis over their estimated
useful lives. Any impairment in value is recognised immediately
in the income statement.
C Software intangibles
Where computer software is not an integral part of a
related item of computer hardware, the software is treated
as an intangible asset. Capitalised software costs include
external direct costs of material and services and the payroll
and payroll-related costs for employees who are directly
associated with the project.
Capitalised software development costs are amortised on a
straight-line basis over their expected economic lives, normally
between three to five years.
Property, plant and equipment
A Land and buildings
The Group’s policy is to state property, plant and equipment at
cost less accumulated depreciation and not to revalue property
for accounting purposes.
B Interest
Interest is not capitalised.
C Depreciation
Depreciation is provided to write off the cost of tangible non-
current assets (including investment properties), less estimated
residual values, by equal annual instalments as follows:
• freehold land – not depreciated;
• freehold and leasehold buildings with a remaining lease term
over 50 years – depreciated to their residual value over their
estimated remaining economic lives;
• leasehold buildings with a remaining lease term of less
than 50 years – over the remaining period of the lease; and
• fixtures, fittings and equipment – 3 to 25 years according
to the estimated life of the asset.
Residual values and useful economic lives are reviewed annually.
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 income statement.
D Assets held under leases
Where assets are financed by leasing agreements where
the risks and rewards are substantially transferred to the
Group (finance leases) the assets are treated as if they had
been purchased outright, and the corresponding liability
to the leasing company is included as an obligation under
finance leases. Depreciation on leased assets is charged
to the income statement on the same basis as owned
assets. Leasing payments are treated as consisting of
capital and interest elements and the interest is charged
to the income statement.
All other leases are operating leases and the costs in respect
of operating leases are charged on a straight-line basis over
the lease term. The value of any lease incentive received to
take on an operating lease (for example, rent-free periods) is
recognised as deferred income and is released over the life
of the lease.
Investment properties
Investment properties are recorded at cost less accumulated
depreciation and any recognised impairment loss.
Leasehold prepayments
Payments made to acquire leasehold land are included
in prepayments at cost and are amortised over the life
of the lease.
Share-based payments
The Group issues equity-settled share-based payments to
certain employees. A fair value for the equity-settled share
awards is measured at the date of grant. The Group measures
the fair value of each award using the Black-Scholes model
where appropriate.
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