Marks and Spencer 2013 Annual Report Download - page 85

Financial statements Marks and Spencer Group plc Annual report and financial statements 2013 83
Overview Strategic review Financial review Governance Financial statements and other information
1 Accounting policies continued
Intangible assets
A. Goodwill Goodwill arising on consolidation represents the
excess of the consideration transferred and the amount of any
non-controlling interest in the acquiree over 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 annually or
as triggering events occur. Any impairment is recognised
immediately in the income statement.
B. Brands Acquired brand values are held on the statement of
financial position initially at cost. Definite life intangibles are
amortised on a straight-line basis over their estimated useful
lives. Indefinite life intangibles are tested for impairment annually
or as triggering events occur. 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 goods and services, as
well as internal 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 and ten years. Computer software under
development is held at cost less any recognised impairment loss.
Any impairment in value is charged to the income statement.
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. Property is not revalued for accounting
purposes. 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.
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 – depreciated 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.
Leasing
Where assets are financed by leasing agreements and 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, unless the term of the lease is shorter.
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, a rent free period) is recognised
as deferred income and is released over the life of the lease.
Leasehold prepayments
Payments made to acquire leasehold land are included in
prepayments at cost and are amortised over the life of the lease.
Cash and cash equivalents
Cash and cash equivalents includes short-term deposits with
banks and other financial institutions, with an initial maturity of three
months or less and credit card payments received within 48 hours.
Inventories
Inventories are valued on a weighted average cost basis and
carried at the lower of cost and net realisable value. Were this
method applied in the prior year, in place of the previously
adopted retail method, there would have been no change in the
value of inventory. Cost includes all direct expenditure and other
attributable costs incurred in bringing inventories to their present
location and condition. 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 best estimate of the expenditure required to
settle the obligation at the end of the reporting period, 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 revenue and profits. The
statements of financial position 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.
Transactions denominated in foreign currencies are translated at
the exchange rate at the date of the transaction. Foreign
currency monetary assets and liabilities held at the end of the
reporting period are translated at the closing balance sheet rate.
The resulting exchange gain or loss is recognised within the
income statement.
Taxation
Tax expense comprises current and deferred tax. Tax is
recognised in the income statement, except to the extent it
relates to items recognised in other comprehensive income or
directly in equity, in which case the related tax is also recognised
in other comprehensive income or directly in equity.