Marks and Spencer 2010 Annual Report Download - page 87

Directors’ report p01 
Financial statements 
Other information p117 
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1 Accounting policies continued
A credit representing the expected return on the assets of the
retirement benefit schemes during the year is included within finance
income. 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 finance income 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 statement of financial position. Assets are only
recognised if they are recoverable.
Actuarial gains and losses are recognised immediately in the
statement of comprehensive income.
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.
B. Brands Acquired brand values are held on the statement of
financial position 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 3 to
10 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. Cost includes professional fees and, for
qualifying assets, borrowing costs capitalised in accordance with the
Group’s accounting policy.
A. Land and buildings The Group’s policy is not to revalue property
for accounting purposes.
B. 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.
C. 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 properties held to earn rentals and/or
for capital appreciation. 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.
Provisions
Provisions are recognised when the Group has a present obligation
as a result of a past event, and it is probable that the Group will be
required to settle that obligation. Provisions are measured at the
directors’ best estimate of the expenditure required to settle the
obligation at the balance sheet date, and are discounted to present
value where the effect is material.
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
comprehensive income.