Unilever 1999 Annual Report Download - page 8

Accounting policies
Unilever Group
Current assets
Stocks are valued at the lower of cost and estimated net
realisable value. Cost is mainly average cost, and comprises
direct costs and, where appropriate, a proportion of
production overheads.
Debtors are stated after deducting adequate provision for
doubtful debts.
Current investments are liquid funds temporarily invested
and are stated at their realisable value. The difference
between this and their original cost is taken to interest in
the profit and loss account.
Retirement benefits
The expected costs of providing retirement pensions
under defined benefit schemes, as well as the costs of other
post-retirement benefits, are charged to the profit and loss
account over the periods benefiting from the employees’
services. Variations from expected cost are normally spread
over the average remaining service lives of current
employees.
Contributions to defined contribution pension schemes are
charged to the profit and loss account as incurred.
Liabilities arising under defined benefit schemes are either
externally funded or provided for in the consolidated
balance sheet. Any difference between the charge to the
profit and loss account in respect of funded schemes and
the contributions payable to each scheme is recorded in the
balance sheet as a prepayment or provision.
Deferred taxation
Full provision is made for deferred taxation, at the rates of
tax prevailing at the year-end unless future rates have been
enacted, on all significant timing differences arising from
the recognition of items for taxation purposes in different
periods to those in which they are included in the Group
accounts.
Provision is not made for taxation which would become
payable if retained profits of group companies and joint
ventures were distributed to the parent companies, as it is
not the intention to distribute more than the dividends, the
tax on which is included in the accounts.
Derivative financial instruments
The types of derivative financial instruments used by
Unilever are described in note 32 on page 29 and in the
Unilever Annual Review 1999 in the Financial Review
section on page 37.
Changes in the value of forward foreign exchange contracts
are recognised in the results in the same period as changes
in the values of the assets and liabilities they are intended to
hedge. Interest payments and receipts arising from interest
rate derivatives such as swaps and forward rate agreements
are matched to those arising from underlying debt and
investment positions.
Payments made or received in respect of the early
termination of derivative financial instruments are spread
over the original life of the instrument so long as the
underlying exposure continues to exist.
Research and development
Expenditure on research and development is charged
against the profit of the year in which it is incurred.
Turnover
Group turnover comprises sales of goods and services after
deduction of discounts and sales taxes. It includes sales to
joint ventures and associated companies but does not
include sales by joint ventures and associated companies or
sales between group companies.
Transfer pricing
The preferred method for determining transfer prices for
own manufactured goods is to take the market price.
Where there is no market price, the companies concerned
follow established transfer pricing guidelines, where
available, or else engage in arm’s length negotiations.
Trade marks owned by the parent companies and used by
operating companies are, where appropriate, licensed in
return for royalties or a fee.
General services provided by central advisory departments,
Business Groups and research laboratories are charged to
operating companies on the basis of fees.
Leases
Lease payments, which are principally in respect of
operating leases, are charged to the profit and loss account
on a straight-line basis over the lease term, or over the
period between rent reviews where these exist.
Shares held by employee share trusts
The assets and liabilities of certain PLC trusts, NV and group
companies which purchase and hold NV and PLC shares to
satisfy options granted are included in the Group accounts.
The book value of shares held is deducted from capital and
reserves, and trust borrowings are included in the Group’s
borrowings. The costs of the trusts are included in the
results of the Group. These shares are excluded from the
basic earnings per share calculation.
8Unilever Annual Accounts 1999