Unilever 2003 Annual Report Download - page 77

74 Unilever Annual Report & Accounts and Form 20-F 2003
Accounting information and policies
Foreign currencies
Exchange differences arising in the accounts of individual
companies are dealt with in their respective profit and loss
accounts. Those arising on trading transactions are taken
to operating profit; those arising on cash, current investments
and borrowings are classified as interest.
In preparing the consolidated accounts, the profit and loss
account, the cash flow statement and all other movements in
assets and liabilities are translated at annual average rates
of exchange. The balance sheet, other than the ordinary share
capital of NV and PLC, is translated at year-end rates of exchange.
In the case of hyper-inflationary economies, which are those in
which inflation exceeds 100% cumulatively over a three-year
period, the accounts are adjusted to reflect current price levels
and remove the influences of inflation before being translated.
The ordinary share capital of NV and PLC is translated at the
rate contained in the Equalisation Agreement of £1 = Fl. 12
(equivalent to €5.445). The difference between this and the value
derived by applying the year-end rate of exchange is taken to
other reserves (see note 23 on page 111).
The effects of exchange rate changes during the year on net
assets at the beginning of the year are recorded as a movement
in profit retained, as is the difference between profit of the
year retained at average rates of exchange and at year-end
rates of exchange.
Goodwill and intangible assets
No value is attributed to internally generated intangible assets.
Goodwill (being the difference between the fair value of
consideration paid for new interests in group companies, joint
ventures and associated companies and the fair value of the
Group’s share of their net assets at the date of acquisition) and
identifiable intangible assets purchased after 1 January 1998 are
capitalised and amortised in the profit and loss account over the
period of their expected useful lives, up to a maximum of
20 years. Periods in excess of five years are used only where the
Directors are satisfied that the life of these assets will clearly
exceed that period. Goodwill and intangible assets purchased
prior to 1 January 1998 were written off in the year of acquisition
as a movement in profits retained.
On disposal of a business acquired prior to 1 January 1998,
purchased goodwill written off on acquisition is reinstated
in arriving at the profit or loss on disposal.
The treatment of goodwill and intangible assets under US GAAP
is discussed on pages 132 to 134.
Goodwill and intangible assets are subject to review for
impairment in accordance with United Kingdom Financial
Reporting Standard (FRS) 11 ‘Impairment of Fixed Assets and
Goodwill’ and United States Statement of Financial Accounting
Standards (SFAS) 142 ‘Goodwill and Other Intangible Assets’. Any
impairment is charged to the profit and loss account as it arises.
Tangible fixed assets
Tangible fixed assets are stated at cost less depreciation.
Depreciation is provided on a straight-line basis at percentages of
cost based on the expected average useful lives of the assets.
Estimated useful lives by major class of assets are as follows:
Freehold buildings 40 years
(no depreciation on freehold land)
Leasehold land Life of lease
Leasehold buildings *40 years
Plant and equipment 2–20 years
Motor vehicles 3–6 years
*or life of lease if less than 40 years
Tangible fixed assets are subject to review for impairment
in accordance with FRS 11 and United States SFAS 144
‘Accounting for the Impairment or Disposal of Long-Lived Assets’
(SFAS 144). Any impairment is charged to the profit and loss
account as it arises.
Fixed investments
Joint ventures are undertakings in which the Group has a long-
term participating interest and which are jointly controlled by the
Group and one or more other parties. Associated companies are
undertakings in which the Group has a participating interest and
exercises significant influence.
Interests in joint ventures and associated companies are stated
in the consolidated balance sheet at the Group’s share of their
aggregate assets and liabilities.
Other fixed investments are stated at cost less any amounts
written off to reflect a permanent impairment. Any impairment
is charged to the profit and loss account as it arises.
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
With effect from 1 January 2003, the Group accounts for
pensions and similar benefits under the United Kingdom Financial
Reporting Standard 17 (FRS 17). Figures for 2002 and 2001 have
been restated. In accordance with the new standard, the
operating and financing costs of defined benefit plans are
recognised separately in the profit and loss account; service costs
are systematically spread over the service lives of employees, and
financing costs are recognised in the periods in which they arise.
Variations from expected costs, arising from the experience of
the plans or changes in actuarial assumptions, are recognised
immediately in the statement of total recognised gains and losses.
The costs of individual events such as past service benefit
enhancements, settlements and curtailments are recognised
immediately in the profit and loss account. The liabilities and,
where applicable, the assets of defined benefit plans are
recognised at fair value in the balance sheet. The charges to the
profit and loss account for defined contribution plans are the
company contributions payable and the assets of such plans are
not included in the Group balance sheet.