Unilever 2008 Annual Report Download - page 87

Notes to the consolidated accounts Unilever Group
1 Accounting information and policies
The accounting policies adopted are the same as those which applied
for the previous financial year, except as set out below under the
heading of ‘Companies legislation and accounting standards’.
Unilever
The two parent companies, NV and PLC, together with their group
companies, operate as a single economic entity (the Unilever Group,
also referred to as Unilever or the Group). NV and PLC have the same
Directors and are linked by a series of agreements, including an
Equalisation Agreement, which are designed so that the position of
the shareholders of both companies is as nearly as possible the same
as if they held shares in a single company.
The Equalisation Agreement provides that both companies adopt
the same accounting principles and requires as a general rule
the dividends and other rights and benefits (including rights on
liquidation) attaching to each €0.16 nominal of ordinary share capital
of NV to be equal in value at the relevant rate of exchange to the
dividends and other rights and benefits attaching to each 31⁄9p
nominal of ordinary share capital of PLC, as if each such unit of
capital formed part of the ordinary capital of one and the same
company. For additional information please refer to ‘Corporate
governance’ on page 51.
Basis of consolidation
Due to the operational and contractual arrangements referred to
above, NV and PLC form a single reporting entity for the purposes
of presenting consolidated accounts. Accordingly, the accounts of
Unilever are presented by both NV and PLC as their respective
consolidated accounts. Group companies included in the consolidation
are those companies controlled by NV or PLC. Control exists when the
Group has the power to govern the financial and operating policies of
an entity so as to obtain benefits from its activities.
The net assets and results of acquired businesses are included in the
consolidated accounts from their respective dates of acquisition, being
the date on which the Group obtains control. The results of disposed
businesses are included in the consolidated accounts up to their date
of disposal, being the date control ceases.
Companies legislation and accounting standards
The consolidated accounts have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union (EU) and in accordance with Book 2 of the Civil
Code in the Netherlands and the United Kingdom Companies Acts
1985 and 2006. They are also in compliance with IFRS as issued by
the International Accounting Standards Board.
The accounts are prepared under the historical cost convention unless
otherwise indicated.
The accounting policies adopted are consistent with those of the
previous financial year except that the Group has adopted the
amendments to IAS 39 ‘Financial Instruments: Recognition and
Measurement’ and IFRS 7 ‘Financial Instruments: Disclosures’ with
effect from 1 July 2008, with no effect, and IFRIC Interpretation 14
‘IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction’ with effect from 1 January 2008,
with no material effect on the financial statements of the Group.
Foreign currencies
Items included in the financial statements of group companies are
measured using the currency of the primary economic environment in
which each entity operates (its functional currency). The consolidated
financial statements are presented in euros. The functional currencies
of NV and PLC are euros and sterling respectively.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the income statement, except
when deferred in equity as qualifying hedges. Those arising on trading
transactions are taken to operating profit; those arising on cash,
financial assets and financial liabilities are classified as finance income
or cost.
In preparing the consolidated financial statements, the income
statement, 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 in accordance
with the Equalisation Agreement. The difference between the
resulting value for PLC and the value derived by applying the year-end
rate of exchange is taken to other reserves (see note 23 on page 123).
The effects of exchange rate changes during the year on net
assets at the beginning of the year are recorded as a movement in
shareholders’ equity, as is the difference between profit of the year
retained at average rates of exchange and at year-end rates of
exchange. For these purposes net assets include loans between group
companies and related foreign exchange contracts, if any, for which
settlement is neither planned nor likely to occur in the foreseeable
future. Exchange gains/losses on hedges of net assets are also
recorded as a movement in equity.
Cumulative exchange differences arising since the date of transition to
IFRS of 1 January 2004 are reported as a separate component of
other reserves (see note 23 on page 123). In the event of disposal or
part disposal of an interest in a group company either through sale or
as a result of a repayment of capital, the cumulative exchange
difference is recognised in the income statement as part of the profit
or loss on disposal of group companies.
Business combinations
Business combinations are accounted for using the acquisition
accounting method. This involves recognising identifiable assets
and liabilities of the acquired business at fair value as at the date of
acquisition.
Acquisitions of minority interests are accounted for using the parent
entity method, whereby the difference between the consideration
and the book value of the share of the net assets acquired is recognised
as goodwill.
Goodwill
Goodwill (being the difference between the fair value of consideration
paid for new interests in group companies and the fair value of the
Group’s share of their net identifiable assets and contingent liabilities
at the date of acquisition) is capitalised. Goodwill is not amortised,
but is subject to an annual review for impairment (or more frequently
if necessary). Any impairment is charged to the income statement as it
arises.
84 Unilever Annual Report and Accounts 2008
Financial statements