Basic HTML Version
Notes to the Consolidated Financial Statements
For the year to 28 February 2011, continued
55
Financial Statements
Basis of Consolidation
Where the Company has the power, either directly or indirectly, to govern
the financial and operating policies of another entity or business so as to
obtain benefits from its activities, it is classified as a subsidiary. The
consolidated Financial Statements present the results of Stobart Group
Limited and its subsidiaries (“the Group”) as if they formed a single entity.
Intercompany transactions and balances between Group companies are
therefore eliminated in full.
Business Combinations
Business combinations from 1 March 2010:
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. Acquisition costs are expensed.
Goodwill is initially measured at cost being the excess of the aggregate of
the acquisition-date fair value of the consideration transferred and the
amount recognised for the non-controlling interest (and where the business
combination is achieved in stages, the acquisition-date fair value of the
acquirer’s previously held equity interest in the acquiree) over the net
identifiable amounts of the assets acquired and the liabilities assumed in
exchange for the business combination.
Identifiable intangible assets, meeting either the contractual-legal or
separability criterion are recognised separately from goodwill. Contingent
liabilities representing a present obligation are recognised if the acquisition-
date fair value can be measured reliably.
If the aggregate of the acquisition-date fair value of the consideration
transferred is lower than the fair value of the assets, liabilities and contingent
liabilities and the fair value of any pre-existing interest held in the business
acquired, the difference is recognised in profit and loss.
Business combinations prior to 1 March 2010:
Business combinations
were accounted for using the purchase method. Transaction costs directly
attributable to the acquisition formed part of the acquisition costs. Theminority
interest is accounted for using the parent-entity extension method, whereby
the difference between the consideration paid and the book value of the share
in net assets acquired is recognised as goodwill.
Goodwill is initially measured at cost being the excess of the cost of business
combination over the Group’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities. If the net fair value of the acquired
entity’s identifiable assets, liabilities and contingent liabilities is greater than
the cost of investment, the difference is recognised in profit and loss.
Goodwill
Goodwill represents the excess of the cost of a business combination over
the interest in the fair value of identifiable assets, liabilities and contingent
liabilities acquired. Cost comprises the fair values of assets given, liabilities
incurred and equity instruments issued, plus any direct costs of acquisition.
Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the consolidated income statement. Where the fair
value of identifiable assets, liabilities and contingent liabilities exceed the fair
value of consideration paid, the excess is credited in full to the consolidated
income statement.
Impairment of Non-Financial Assets (excluding Inventories,
Investment Properties and Deferred Tax Assets)
Impairment tests on goodwill and intangible assets with indefinite useful
lives are undertaken at least annually at the financial year end and also if
there are indicators of impairment. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances indicate that
their carrying amount may not be recoverable. Where the carrying value of
an asset exceeds its recoverable amount (i.e. the higher of value in use and
fair value less costs to sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the asset's cash-generating unit
(i.e. the lowest group of assets in which the asset belongs for which there
are separately identifiable cash inflows). Goodwill is allocated on initial
recognition to each of the Group's cash-generating units that are expected
to benefit from the synergies of the combination giving rise to the goodwill.
Impairment charges are included in the operating expenses line item in the
consolidated income statement, except to the extent they reverse gains
previously recognised in the consolidated statement of other comprehensive
income. Impairment losses except losses relating to goodwill can be reversed
in certain circumstances.
An assessment is made at each reporting date as to whether there is any
indication that previously recognised impairment losses may no longer exist
or may have decreased. If such indication exists, the recoverable amount is
estimated. A previously recognised impairment loss is reversed only if there
has been a change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognised. If that is the case the
carrying amount of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognised
for the asset in prior years. Such reversal is recognised in profit or loss unless
the asset is carried at revalued amount, in which case the reversal is treated
as a revaluation increase. After such a reversal the depreciation charge is
adjusted in future periods to allocate the asset’s revised carrying amount,
less any residual value, on a systematic basis over its remaining useful life.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits,
and highly liquid investments readily convertible to known amounts of cash
and subject to insignificant risk of changes in value.
Financial Instruments
The Group uses derivative financial instruments such as interest rate swaps to
hedge its cash flow risks associated with interest rate fluctuations. Derivative
financial instruments are initially recognised at fair value on the date on which
a derivative contract is entered into and are subsequently remeasured at fair
value at each reporting date. Derivatives are carried as assets when the fair
value is positive and as liabilities when the fair value is negative.
The fair value of interest rate swaps are determined by reference to market
values for similar instruments.
For those derivatives designated as hedges and for which hedge accounting
is desired, the hedging relationship is formally designated and documented
at its inception. This documentation identifies the risk management objective
and strategy for undertaking the hedge, the hedging instrument, the hedged
item or transaction, the nature of the risk being hedged and how
effectiveness will be measured throughout its duration. Such hedges are
expected at inception to be highly effective in offsetting changes in cash
flows and are assessed at the end of each reporting period to determine
that they are actually effective throughout the reporting period for which
they were designated.
For cash flow hedges, the effective portion of the gain or loss on the hedging
instrument is recognised directly as other comprehensive income in the net
unrealised gains reserve, while the ineffective portion is recognised in the
income statement. Amounts taken to other comprehensive income are
transferred to the income statement when the hedged transaction affects
the current period income statement.
Foreign Currency
Transactions entered into by Group entities in a currency other than the
currency of the primary economic environment in which they operate (their
"functional currency") are recorded at the rates ruling when the transactions
occur. Foreign currency monetary assets and liabilities are translated at the
rates ruling at the statement of financial position date.
Exchange differences arising on the retranslation of unsettled monetary assets
and liabilities are recognised immediately in the consolidated income statement.
The assets and liabilities of foreign operations are translated into Sterling at
the rate of exchange prevailing at the statement of financial position date.
The income statements are translated at the average rate. The exchange
differences arising on the translation are taken directly to a separate
component of equity.
Financial Assets
Unless otherwise indicated, the carrying amounts of the Group’s financial
assets are a reasonable approximation of their fair values.
Loans and Receivables
These assets are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise principally
through the provision of goods and services to customers (e.g. trade