Marks and Spencer 2015 Annual Report Download - page 97

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ANNUAL REPORT AND FINANCIAL STATEMENTS 2015
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
OUR BUSINESSOUR PERFORMANCE
GOVERNANCEFINANCIAL STATEMENTS
1 ACCOUNTING POLICIES CONTINUED
Pensions continued
The net interest cost on the net retirement benefi t asset/liability is
calculated by applying the discount rate, measured at the beginning
of the year, to the net defi ned benefi t asset/liability and is included
as a single net amount in fi nance income.
Remeasurements being actuarial gains and losses, together with
the di erence between actual investment returns and the return
implied by the net interest cost, are recognised immediately in the
statement of comprehensive income.
Payments to defi ned contribution retirement benefi t schemes are
charged as an expense as they fall due.
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
identifi able 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
fi nancial position initially at cost. Defi nite life intangibles are
amortised on a straight-line basis over their estimated useful lives.
Indefi nite 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 recognised immediately in 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 o 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.
> Fixtures, fi ttings and equipment – three 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 recognised immediately in the
income statement.
Leasing
Where assets are fi nanced by leasing agreements and the risks and
rewards are substantially transferred to the Group (fi nance 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 fi nance 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 and buildings 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 fi nancial 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. Cost includes all direct
expenditure and other attributable costs incurred in bringing
inventories to their present location and condition. All inventories
are fi nished goods. Certain purchases of inventories may be subject
to cash fl ow hedges for foreign exchange risk. The Group applies a
basis adjustment for those purchases in a way that the cost is initially
established by reference to the hedged exchange rate and not the
spot rate at the day of purchase.
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 e ect 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 at each reporting period and the charge is adjusted to
refl ect 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 profi ts. The
statements of fi nancial position of overseas subsidiaries are
translated at year end exchange rates. The resulting exchange
di erences 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,
except when deferred in other comprehensive income as qualifying
cash fl ow hedges and qualifying net investment hedges.