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A deferred tax asset is recognised to the extent that it is probable that future taxable
profit will be available against which the temporary difference can be utilised.
G. Non-current assets held for sale and discontinued operations
Where applicable, on initial classification as ‘held for sale’, non-current disposal
groups are recognised at the lower of carrying amount and fair value less costs
to sell. Impairment losses on the initial classification of assets as held for sale
are included in profit or loss, even for assets measured at fair value, as are
impairment losses on subsequent remeasurement and any reversal thereof.
Once classified as held for sale, assets are no longer depreciated or amortised.
A discontinued operation is a component of the Group’s business that
represents a separate major line of business that has been disposed of,
is held for sale or is a subsidiary acquired exclusively with a view to re-sale.
H. Foreign currencies
i. Foreign currency transactions
Monetary assets and liabilities denominated in foreign currencies have been
translated into Sterling at the rates of exchange ruling at the balance sheet
date. Foreign exchange differences arising on translating transactions at
the exchange rate ruling on the transaction date are reflected in the income
statement. Non-monetary assets and liabilities that are measured at historical
cost in a foreign currency are translated using the exchange rate at the date
of the transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated into Sterling at foreign
exchange rates ruling at the balance sheet date.
ii. Foreign operations
The income statements of overseas subsidiary undertakings are translated at
the appropriate average rate of exchange for the year and the adjustment to
year end rates is taken directly to reserves.
The assets and liabilities of foreign operations, including goodwill and fair value
adjustments arising on acquisition, are translated at foreign exchange rates
ruling at the balance sheet date.
Foreign exchange differences arising on retranslation are recognised directly
as a separate component of equity. Since 1 January 2004, the Group’s date
of transition to IFRSs, such differences have been recognised in the translation
reserve. When a foreign operation is disposed of, in part or in full, the relevant
amount in the translation reserve is transferred to profit or loss.
I. Financial instruments and fair value hedging
Financial instruments are initially recorded at fair value plus directly attributable
transaction costs unless the instrument is a derivative not designated as a
hedge (see below). Subsequent measurement depends on the designation
of the instrument, which follows the categories in IAS39:
• fixed deposits, principally comprising funds held with banks and other financial
institutions are classified as ‘available for sale assets’ under IAS39, and held
at fair value. Short-term borrowings and overdrafts are classified
as financial liabilities at amortised cost.
• derivatives, comprising interest rate swaps, foreign exchange contracts
and options, metals futures contracts and any embedded derivatives, are
classified as ‘fair value through profit or loss’ under IAS39, unless designated
as hedges. Derivatives not designated as hedges are initially recognised at
fair value; attributable transaction costs are recognised in profit or loss when
incurred. Subsequent to initial recognition, changes in fair value of such
derivatives and gains or losses on their settlement are recognised in
net financial income or expense.
• long-term loans and other interest bearing borrowings are generally held at
amortised cost using the effective interest rate method. Where the long-term
loan is hedged, generally by an interest rate swap, and the hedge is regarded
as effective, the carrying value of the long-term loan is adjusted for changes in
fair value of the hedge.
• trade receivables are stated at cost as reduced by appropriate impairment
allowances for estimated irrecoverable amounts.
• trade payables are stated at cost.
• financial assets and liabilities are recognised on the balance sheet only when
the Group becomes a party to the contractual provisions of the instrument.
• available for sale financial assets are carried at fair value with gains and losses
being recognised in equity, except for impairment losses which are recognised
in the income statement.
J. Other hedging
i. Hedge of monetary assets and liabilities, financial commitments or
forecast transactions
Where a derivative financial instrument is used as an economic hedge of the
foreign exchange or metals commodity price exposure of a recognised monetary
asset or liability, financial commitment or forecast transaction, but does not meet
the criteria to qualify for hedge accounting under IAS39 no hedge accounting is
applied and any gain or loss resulting from changes in fair value of the hedging
instrument is recognised in net financial income or expense.
Where such a derivative is a formally designated hedge of a forecast transaction
for accounting purposes, such as the forward component of the deal-contingent
forward contract entered into to hedge foreign exchange movements relating
to the US dollar proceeds of the sale of the Retail Dispense businesses, movements
in the value of the derivative are recognised directly in other comprehensive income
to the extent the hedge is effective. The Company assesses the effectiveness of
the hedge based on the expected fair value of the amount to be received and the
movement in the fair value of the derivative designated as the hedge.
For segmental reporting purposes, changes in the fair value of economic hedges
that are not designated hedges, which relate to current year trading, together with
the gains and losses on their settlement, are allocated to the segmental revenues
and operating profit of the relevant business segment.
ii. Hedge of net investment in foreign operation
Where a foreign currency liability or derivative financial instrument is a formally
designated hedge of a net investment in a foreign operation, foreign exchange
differences arising on translation of the foreign currency liability or changes in
the fair value of the financial instrument are recognised directly in equity via
other comprehensive income to the extent the hedge is effective. The Group
assesses the effectiveness of its net investment hedges based on fair value
changes of its net assets, including relevant goodwill designated as foreign
currency assets, and the fair value changes of both the debt designated
as a hedge and the relevant financial instrument.
K. Business combinations and goodwill
Business combinations are accounted for using the acquisition method.
The cost of an acquisition is measured as the aggregate of the consideration
transferred, measured at acquisition date fair value and the amount of any
non-controlling interest in the acquiree. The choice of measurement of non-
controlling interest, either at fair value or at the proportionate share of the
acquiree’s identifiable net assets is determined on a transaction by transaction
basis. Acquisition-related costs incurred are expensed and included in
administrative expenses unless their quantum, nature or volatility meets
the definition of an exceptional item as set out in accounting policy D.
When the Group acquires a business, it assesses the financial assets and
liabilities assumed for appropriate classification and designation in accordance
with the contractual terms, economic circumstances and pertinent conditions
as at the acquisition date. This includes the separation of embedded
derivatives in contracts held by the acquiree.
Any contingent consideration to be transferred by the acquirer will be
recognised at fair value at the acquisition date. Subsequent changes to the
fair value of the contingent consideration which is deemed to be a liability
will be recognised in accordance with IAS39 either in profit or loss or in other
comprehensive income. If the contingent consideration is classified as equity,
it is not remeasured until it is finally settled within equity.
SECTION 5 – OTHER NOTES
Continued
