Marks and Spencer 2009 Annual Report Download - page 87

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1 Accounting policies continued
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.
Inventories
Inventories are valued at the lower of cost and net realisable
value using the retail method, which is computed on the basis of
selling price less the appropriate trading margin. All inventories are
finished goods.
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.
The fair value of each award is recognised as an expense over the
vesting period on a straight-line basis, after allowing for an estimate
of the share awards that will eventually vest. The level of vesting is
reviewed annually; and the charge is adjusted to reflect actual and
estimated levels of vesting.
Foreign currencies
The results of overseas subsidiaries are translated at the weighted
average of monthly exchange rates for sales and profits. The balance
sheets of overseas subsidiaries are translated at year end exchange
rates. The resulting exchange differences are dealt with through
reserves and reported in the consolidated statement of recognised
income and expense.
Transactions denominated in foreign currencies are translated at
the exchange rate at the date of the transaction. Foreign currency
assets and liabilities held at the balance sheet date are translated at
the closing balance sheet rate. The resulting exchange gain or loss
is recognised within the income statement.
Taxation
The tax charge comprises current tax payable and deferred tax.
The current tax charge represents an estimate of the amounts
payable to tax authorities in respect of the Group’s taxable profits
and is based on an interpretation of existing tax laws.
Deferred tax is recognised on temporary differences between the
carrying amount of an asset or liability in the balance sheet and its
tax base at tax rates that are expected to apply when the asset is
realised or the liability settled, based on tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is not recognised in respect of:
– the initial recognition of goodwill that is not tax deductible; and
– the initial recognition of an asset or liability in a transaction which
is not a business combination and at the time of the transaction
does not affect accounting or taxable profits.
Deferred tax assets are only recognised when it is probable that
taxable profits will be available against which the deferred tax asset
can be utilised.
Deferred tax liabilities are not provided in respect of undistributed
profits of non-UK resident subsidiaries where (i) the Group is able
to control the timing of distribution of such profits; and (ii) it is
not probable that a taxable distribution will be made in the
foreseeable future.
Financial instruments
Financial assets and liabilities are recognised on the Group’s balance
sheet when the Group becomes a party to the contractual provisions
of the instrument.
A. Trade receivables Trade receivables recorded initially at fair value
and subsequently measured at amortised cost. Generally, this results
in their recognition at nominal value less any allowance for any
doubtful debts.
B. Investments and other financial assets Investments and other
financial assets are classified as either ‘available for sale’, ‘fair value
through profit or loss’ or ‘held to maturity’. They are initially measured
at fair value, including transaction costs, with the exception of ‘fair
value through profit and loss’. Financial assets held at fair value
through profit and loss are initially recognised at fair value and
transaction costs are expensed.
Where securities are designated as ‘fair value through profit or loss’,
gains and losses arising from changes in fair value are included in
net profit or loss for the period. For ‘available for sale’ investments,
gains or losses arising from changes in fair value are recognised
directly in equity, until the security is disposed of or is determined
to be impaired, at which time the cumulative gain or loss previously
recognised in equity is included in the net profit or loss for the period.
Equity investments that do not have a quoted market price in an
active market and whose fair value cannot be reliably measured
by other means are held at cost. ‘Held to maturity’ investments are
measured at amortised cost using the effective interest method.
Investments in subsidiaries are held at cost less impairment.
Dividends received from the pre-acquisition profits of subsidiaries
are deducted from the cost of investment.
C. Classification of financial liabilities and equity Financial liabilities and
equity instruments are classified according to the substance of the
contractual arrangements entered into. An equity instrument is any
contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities.
D. Bank borrowings Interest-bearing bank loans and overdrafts
are initially recorded at the fair value, which equals the proceeds
received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue
costs, are accounted for on an effective interest rate method and
are added to the carrying amount of the instrument to the extent
that they are not settled in the period in which they arise.
E. Loan notes Long-term loans are initially measured at fair value and
are subsequently held at amortised cost unless the loan is hedged
by a derivative financial instrument in which case hedge accounting
treatment will apply.
F. Trade payables Trade payables are recorded initially at fair value
and subsequently measured at amortised cost. Generally this results
in their recognition at their nominal value.