Marks and Spencer 2015 Annual Report Download - page 98

96
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
1 ACCOUNTING POLICIES CONTINUED
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.
Deferred tax is accounted for using a temporary di erence
approach, and is the tax expected to be payable or recoverable
on temporary di erences between the carrying amount of
assets and liabilities in the statement of fi nancial position and the
corresponding tax bases used in the computation of taxable profi t.
Deferred tax is calculated based on the expected manner of
realisation or settlement of the carrying amount of assets and
liabilities, applying tax rates and laws enacted or substantively
enacted at the end of the reporting period.
Deferred tax liabilities are generally recognised for all taxable
temporary di erences. Deferred tax liabilities are recognised
for taxable temporary di erences arising on investments in
subsidiaries, associates and joint ventures, except where the
reversal of the temporary di erence can be controlled by the
Group and it is probable that the di erence will not reverse in
the foreseeable future.
Deferred tax liabilities are not recognised on temporary di erences
that arise from goodwill which is not deductible for tax purposes.
Deferred tax assets are recognised to the extent it is probable
that taxable profi ts will be available against which the deductible
temporary di erences can be utilised. The carrying amount of
deferred tax assets is reviewed at the end of each reporting period
and reduced to the extent that it is no longer probable that
su cient taxable profi ts will be available to allow all or part of
the asset to be recovered.
Deferred tax assets and liabilities are not recognised in respect of
temporary di erences that arise on initial recognition of assets
and liabilities acquired other than in a business combination.
Financial instruments
Financial assets and liabilities are recognised in the Group’s
statement of fi nancial position when the Group becomes a party
to the contractual provisions of the instrument.
A. Trade and other receivables Trade receivables are recorded
initially at fair value and subsequently measured at amortised cost.
As such, this results in their recognition at nominal value less any
allowance for any doubtful debts.
B. Other fi nancial assets Other fi nancial assets consist of
investments in debt and equity securities and short-term
investments, and are classifi ed as either ‘available-for-sale’ or ‘ fair
value through profi t or loss’. Avail able-for-sale fi nancial assets are
initially measured at fair value, including transaction costs directly
attributable to the acquisition of the fi nancial asset. Financial assets
held at fair value through profi t or loss are initially recognised at fair
value and transaction costs are expensed.
Where securities are designated as ‘fair value through profi t or loss’,
gains and losses arising from changes in fair value are included in
profi t or loss for the period. For ‘available-for-sale’ investments,
gains or losses arising from changes in fair value are recognised
in comprehensive income, until the security is disposed of or is
determined to be impaired, at which time the cumulative gain or
loss previously recognised in comprehensive income is included
in the profi t 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.
C. Classifi cation of fi nancial liabilities and equity Financial
liabilities and equity instruments are classifi ed 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 fair value, which equals the proceeds received,
net of direct issue costs. They are subsequently held at amor tised
cost. Finance charges, including premiums payable on settlement
or redemption and direct issue costs, are accounted for using an
e ective 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 fi nancial instrument in which case hedge
accounting treatment will apply.
F. Trade and other payables Trade and other payables are recorded
initially at fair value and subsequently measured at amortised cost.
Generally this results in their recognition at their nominal value.
G. Equity instruments Equity instruments issued by the Company
are recorded at the consideration received, net of direct issue costs.
Derivative fi nancial instruments and hedging activities
The Group primarily uses interest rate swaps and forward foreign
currency contracts to manage its exposures to fl uctuations in
interest rates and foreign exchange rates. These instruments
are initially recognised at fair value on the trade date and are
subsequently remeasured at their fair value at the end of the
reporting period. The method of recognising the resulting gain
or loss is dependent on whether the derivative is designated as
a hedging instrument and the nature of the item being hedged.
The Group designates certain hedging derivatives as either:
> A hedge of a highly probable forecast transaction or change in
the cash fl ows of a recognised asset or liability (a cash fl ow hedge).
> A hedge of the exposure to change in the fair value of a
recognised asset or liability (a fair value hedge).
> A hedge of the exposure on the translation of net investments in
foreign entities (a net investment hedge).
At inception of a hedging relationship, the hedging instrument and
the hedged item are documented and prospective e ectiveness
testing is performed. During the life of the hedging relationship,
e ectiveness testing is performed to ensure the instrument
remains an e ective hedge of the transaction. Changes in the fair
value of derivative fi nancial instruments that do not qualify for
hedge accounting are recognised in the income statement as
they arise.
A. Cash fl ow hedges Changes in the fair value of derivative fi nancial
instruments that are designated and e ective as hedges of future
cash fl ows are recognised in other comprehensive income and any
ine ective portion is recognised immediately in the income
statement. If the fi rm commitment or forecast transaction that is
the subject of a cash fl ow hedge results in the recognition of a non-
fi nancial asset or liability, then, at the time the asset or liability is
recognised, the associated gains or losses on the derivative that had
previously been recognised in comprehensive income are included
in the initial measurement of the asset or liability.
For hedges that do not result in the recognition of an asset or a
liability, amounts deferred in comprehensive income are recognised
in the income statement in the same period in which the hedged
items a ect profi t or loss.