Significant Accounting Policies continued
Applicable to the Consolidated Financial Statements for the year ended 31 December 2007
Operating leases for which the Group is the lessee
Lease payments under operating leases (net of any incentive received from the
lessor) are recognised as expenses in the Income Statement on a straight-line
basis over the lease term.
Vehicles subject to manufacturer repurchase agreements
Vehicles subject to manufacturer repurchase agreements are not recognised as
non-current assets since these arrangements are accounted for as operating
leases (lessee accounting). The difference between the initial payment and the
final repurchase price (the obligation of the manufacturer) is considered as a
deferred charge and is classified as prepaid vehicle operating lease charges
within trade and other receivables. At inception of the arrangement, a separate
repurchase agreement receivable is also recognised within trade and other
receivables for the final repurchase price.
Finance leases for which the Group is the lessee
Leases of vehicles (including vehicles subject to manufacturer repurchase
arrangements) and other property, plant and equipment, where the Group has
substantially all the risks and rewards of ownership, are classified as finance
leases. Finance leases are capitalised at the inception of the lease at the lower
of the fair value of the leased asset or the present value of the minimum lease
payments. Each lease payment is allocated between the liability and the finance
charge so as to achieve a constant rate of return on the finance balance
outstanding. The corresponding rental obligations, net of finance charges, are
included in interest-bearing liabilities. The interest element of the finance cost is
charged to the Income Statement over the lease period. The leased assets are
depreciated over their expected useful lives on a basis consistent with similar
owned vehicles or other property, plant and equipment. If there is no reasonable
certainty that ownership will be acquired by the end of the lease term, the asset
is depreciated over the shorter of the lease term and its useful life.
Non-current assets held for sale
Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is met when the sale is highly probable, the asset is available for immediate sale in its present condition, management are committed to the asset disposal, and disposal is expected to be completed within 12 months. Non-current assets classified as held for sale cease to be depreciated and are measured at the lower of carrying amount and fair value less selling costs.
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their location and condition at the balance sheet date. Items are valued using the first in, first out method. When inventories are used, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. Provision for write-downs to net realisable value and losses of inventories are recognised as an expense in the period in which the write-down or loss occurs. Reversals are recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.
Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount is reduced through the use of an allowance account, and the amount is recognised in the Income Statement within administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the Income Statement within administrative expenses.
Cash and cash equivalents
Cash comprises cash in hand, demand deposits and bank overdrafts. Cash equivalents include short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
Impairment of financial assets
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the Income Statement.
Trade and other payables
Trade and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method.
Provisions
A provision is recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision is recognised. Provisions are measured at the value of the expenditures expected to be required to settle the obligation. Where the time value of money is material, provisions are discounted using an appropriate rate that takes into account the risks specific to the liability.
Uninsured losses are recognised when the underlying event occurs at the value of the expenditures expected to be required to settle the obligation. Accruals are made for uninsured losses notified and provisions are made for claims incurred but not reported at each year end. Recoveries of amounts claimed from insurers to settle expenses incurred are recognised when it is virtually certain that reimbursement will be received. As a result of more accurate industry data being made available during the year, the Group reviewed the application of the policy and this resulted in an exceptional credit to the Income Statement of €5.7 million (see Note 5g). Provisions are measured at the value of the expenditures expected to be required to settle the obligation.
Retirement benefit obligations
The Group operates various defined benefit and defined contribution retirement benefit plans. Most of these plans are funded schemes, that is they are financed through a pension fund or an external insurance policy. The minimum funding level of these schemes is defined by national rules.
Payments to defined contribution retirement benefit plans are charged as an expense as they fall due.
The Group’s commitments under defined benefit retirement benefit plans, and the related costs, are valued using the “projected unit credit method”, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised in the Statement of Recognised Income and Expense. Past service cost is recognised immediately to the extent that the benefits have already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of any refunds and reductions in future contributions to the plan. The current service costs and gains and losses on settlements and curtailments are included in operating expenses in the Income Statement.