Unilever 2009 Annual Report Download - page 88

Unilever Annual Report and Accounts 2009 85
1 Accounting information and policies (continued)
Impairment of financial instruments
At each balance sheet date the Group assesses whether there is
evidence that financial assets are impaired. A significant or prolonged
fall in value below cost is considered in determining whether an asset
is impaired. For available-for-sale financial assets the cumulative loss is
removed from equity and recognised in the income statement. Any
subsequent reversals of impairment losses on available-for-sale equity
instruments are not recognised in the income statement.
Inventories
Inventories are valued at the lower of weighted average cost and net
realisable value. Cost comprises direct costs and, where appropriate,
a proportion of attributable production overheads.
Cash and cash equivalents
For the purpose of preparation of the cash flow statement, cash and
cash equivalents includes cash at bank and in hand, highly liquid
interest-bearing securities with original maturities of three months
or less, investments in money market funds with insignificant risk of
changes in value, and bank overdrafts.
Pensions and similar obligations
The operating and financing costs of defined benefit plans are
recognised separately in the income statement. Service costs are
systematically allocated over the service lives of employees, and
financing costs are recognised in the periods in which they arise. The
costs of individual events such as past service benefit enhancements,
settlements and curtailments are recognised immediately in the income
statement. Variations from expected costs, arising from the experience
of the plans or changes in actuarial assumptions, are recognised
immediately in the statement of comprehensive income. The defined
benefit plan surplus or deficit in the balance sheet comprises the total
for each plan of the fair value of plan assets less the present value of
the defined benefit obligation (using a discount rate based on high
quality corporate bonds).
The charges to the income statement for defined contribution plans
are the company contributions payable, and the assets and liabilities
of such plans are not included in the balance sheet of the Group.
All defined benefit plans are subject to regular actuarial review using
the projected unit method, either by external consultants or by
actuaries employed by Unilever. Group policy is that the most
important plans, representing approximately 80% of the defined
benefit liabilities, are formally valued every year; other principal plans,
accounting for approximately a further 15% of liabilities, have their
liabilities updated each year. Group policy for the remaining plans
requires a full actuarial valuation at least every three years. Asset values
for all plans are updated every year.
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
Segment information is provided based on the geographic segments
of the management structure of the Group. Additional information is
provided by product area.
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 income 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. These assets are depreciated on a straight-line basis over
the shorter of the useful life of the asset and the lease term. 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.
Lease payments under operating leases are charged to the income
statement on a straight-line basis over the term of the lease.
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.