Unilever 2010 Annual Report Download - page 79

76 Unilever Annual Report and Accounts 2010
Financial statements
Notes to the consolidated financial statements 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 ‘Recent accounting developments’.
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 financial statements. Accordingly, the accounts
of Unilever are presented by both NV and PLC as their respective
consolidated financial statements. 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 financial statements 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 financial
statements up to their date ofdisposal, being the date control ceases.
Inter-company transactions and balances are eliminated.
Companies legislation and accounting standards
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) as
adopted by the European Union (EU), IFRIC Interpretations and in
accordance with Part9 of Book 2 of the Civil Code in the Netherlands
and the United Kingdom Companies Act 2006. They are also in
compliance with IFRS as issued by the International Accounting
Standards Board.
These accounts are prepared under the historical cost convention unless
otherwise indicated.
Goodwill
Goodwill arises on business combinations. It is calculated as the excess
of the total fair value of consideration transferred plus the amount of
any non-controlling interest in the acquiree plus the acquisition-date
fair value of any previous equity interest in the acquiree, less the fair
value of the Group’s share of the identifiable net assets acquired.
Goodwill is capitalised and is not subject to amortisation. It is carried
atcost but subject to impairment testing annually, or more frequently
ifevents or circumstances indicate this is necessary. Any impairment
ischarged to the income statement as it arises.
Goodwill acquired in a business combination is allocated to the Group’s
cash generating units, or groups of cash generating units, that are
expected to benefit from the synergies of the combination. These
might not always be precisely the same as the cash generating units
that the assets or liabilities of the acquired business are assigned
to.Each unit or group of units to which the goodwill is allocated
represents the lowest level within the Group at which the goodwill is
monitored for internal management purposes, and is not larger than
anoperating segment.
Intangible assets
On acquisition of new interests in group companies, Unilever recognises
any specifically identifiable intangible assets separately from goodwill.
Intangible assets are initially measured at fair value as at the date of
acquisition. Separately purchased intangible assets are initially
measured at cost.
Finite-lived intangible assets mainly comprise patented and non-patented
technology, know-how and software. These assets are capitalised and
amortised on a straight-line basis in the income statement over the
period of their expected useful lives, or theperiod of legal rights if
shorter. None of the amortisation periods exceeds ten years and
periods in excess of five years are used only where Unilever is satisfied
that the life of these assets will clearly exceed that period.
Indefinite-lived intangibles mainly comprise trademarks. These assets
are capitalised but are not amortised. They are subject to an annual
review for impairment or more frequently if events or circumstances
indicate this is necessary. Any impairment is charged to the income
statement as it arises.
Unilever monitors the level of product development costs against all
thecriteria set out in IAS 38. These include the requirement to establish
that a flow of economic benefits is probable before costs are
capitalised. For Unilever this is evident only shortly before a product is
launched into the market. The level of costs incurred after these criteria
have been met is currently insignificant.
Pensions and similar obligations
For defined benefit plans, the operating and financing costs are recognised
separately in the income statement. The amount charged to operating
cost in the income statement is the cost of accruing pension benefits
promised to employees over the year, plus the costs of individual events
such as past service benefit enhancements, settlements and
curtailments (such events are recognised immediately in the income
statement). Theamount charged to financing costs includes a credit
equivalent to the Group’s expected return on the pension plans’ assets
over the year, offset by a charge equal to the expected increase in the
plans’ liabilities over the year. Any differences between the expected
return on assets and the return actually achieved, and any changes in
the liabilities over the year due to changes in assumptions or experience
within the plans, 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).
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. The 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.
For defined contribution plans, the charges to the income statement
are the company contributions payable, as the company’s obligation is
limited to contributions paid into the plans. The assets and liabilities of
suchplans are not included in the balance sheet of the Group.
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.