Unilever 2007 Annual Report Download - page 77

Unilever Annual Report and Accounts 2007 75
Financial statements continued
1 Accounting information and policies (continued)
Taxation
Income tax on the profit or loss for the year comprises current and
deferred tax. Income tax is recognised in the income statement except
to the extent that it relates to items recognised directly in equity.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustments to tax payable in respect
of previous years.
Deferred taxation is recognised using the liability method on taxable
temporary differences between the tax base and the accounting base
of items included in the balance sheet of the Group. The following
temporary differences are not provided for: goodwill not deductible for
tax purposes, the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit, and differences relating to
investments in subsidiaries to the extent that they will probably not
reverse in the forseeable future. The amount of deferred tax provided
is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates prevailing at the
year end unless future rates have been enacted or substantively enacted.
A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset can
be utilised. Deferred tax assets are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Provisions
Provisions are recognised when either a legal or constructive
obligation, as a result of a past event, exists at the balance sheet date
and where the amount of the obligation can be reliably estimated.
Segment information
Segmental information is provided on the basis of geographical
segments and product categories. The primary format, geographic
regions, is based on the management structure of the Group, which
operates in three geographical regions.
Revenue recognition
Turnover comprises sales of goods and services after deduction of
discounts and sales taxes. It does not include sales between group
companies. Discounts given by Unilever include rebates, price
reductions and incentives given to customers, promotional couponing
and trade communication costs.
Turnover is recognised when the risks and rewards of the underlying
products and services have been substantially transferred to the
customer. Revenue from services is recognised as the services
are performed. Interest revenue is recognised as interest accrues
using the effective interest method.
Research and market support costs
Expenditure on research and market support, such as advertising,
is charged to the income statement when incurred.
Leases
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as non-current assets
of the Group at their fair value at the date of commencement of
the lease or, if lower, at the present value of the minimum lease
payments. The corresponding liability to the lessor is included in
the balance sheet as a finance lease obligation. Lease payments are
apportioned between finance charges and reduction of the lease
obligation so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are charged
directly against income.
A profit or loss is recognised on a sale and leaseback transaction
based on the difference between sales proceeds and the carrying
amount of the asset. Where the transaction results in a finance lease,
the profit or loss is deferred and amortised over the lease term.
Where the transaction results in an operating lease, any profit or
loss is recognised immediately with reference to the proceeds of
sale and the fair value of the asset.
Lease payments relating to operating leases are charged to the
income statement on a straight-line basis over the lease term.
Share-based payments
The economic cost of awarding shares and share options to
employees is reflected by recording a charge in the income statement
equivalent to the fair value of the benefit awarded over the vesting
period. The fair value is determined with reference to option pricing
models, principally adjusted Black-Scholes models or a multinomial
pricing model.
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 consolidated accounts. The
book value of shares held is deducted from other reserves, and trusts’
borrowings are included in the Group’s liabilities. The costs of the
trusts are included in the results of the Group. These shares are
excluded from the calculation of earnings per share.
Assets held for sale
Assets and groups of assets and liabilities which comprise disposal
groups are classified as ‘held for sale’ when all of the following criteria
are met: a decision has been made to sell, the assets are available for
sale immediately, the assets are being actively marketed, and a sale
has been or is expected to be concluded within twelve months of
the balance sheet date. Assets and disposal groups held for sale
are valued at the lower of book value or fair value less disposal
costs. Assets held for sale are not depreciated.
Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The preparation of financial statements requires management to make
estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related
actual results. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.
Income statement presentation
On the face of the income statement, costs and revenues relating
to restructuring, business disposals and impairments are disclosed.
In addition, individual items judged to be significant are disclosed
separately. These are material in terms of nature and amount. These
disclosures are given in order to provide additional information to help
users better understand financial performance.
Impairment of goodwill and indefinite-lived intangible assets
Impairment reviews in respect of goodwill and intangible assets are
performed at least annually. More regular reviews are performed if
events indicate that this is necessary. Examples of such triggering
events would include a significant planned restructuring, a major
change in market conditions or technology, expectations of future
operating losses, or negative cash flows.
The recoverable amounts of cash-generating units are determined
based on the higher of fair value less costs to sell and value-in-use
calculations. These calculations require the use of estimates. Details
of key assumptions made are set out in note 9 on page 86.
Notes to the consolidated accounts Unilever Group