Marks and Spencer 2009 Annual Report Download - page 86

Marks and Spencer Group plc Annual report and financial statements 2009 Financial statements
Notes to the financial statements
continued
82
1 Accounting policies continued
Revenue
Revenue 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. Sales of furniture
and online sales are recorded on delivery to the customer.
Exceptional items
Exceptional income and charges are those items that are one-off in
nature and create significant volatility in reported earnings and are
therefore reported separately in the income statement. This includes
costs relating to strategy changes that are not regular running costs
of the underlying business and pension credits arising on changes to
the UK defined benefit scheme.
Dividends
Final dividends are recorded in the financial statements in the
period in which they are approved by the Company’s shareholders.
Interim dividends are recorded in the period in which they are
approved and paid.
Pensions
Funded pension plans are in place for the Group’s UK employees
and some 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 using
the projected unit credit method. 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. Computer software under development is held at cost
less any recognised impairment loss.
Property, plant and equipment
The Group’s policy is to state property, plant and equipment at
cost less accumulated depreciation and any recognised impairment
loss. Assets in the course of construction are held at cost less any
recognised impairment loss.
A. Land and buildings The Group’s policy is 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.