Significant Accounting Policies continued
Applicable to the Consolidated Financial Statements for the year ended 31 December 2007
Administrative expenses
Administrative expenses are recognised as an expense in the period in which they are incurred and include staff costs, non-vehicle related rental charges and other overheads.
Finance costs
Finance costs are recognised as an expense in the period in which they are incurred.
Share-based payments
Share-based payments are exclusively made in connection with employee share option plans (ESOPs).
IFRS 2, Share-Based Payment, is not applied to shares, share options or other equity instruments that were granted before or on 7 November 2002 nor for options issued after that date which had vested at or before 1 January 2005. Equity-settled ESOPs granted after that date are accounted for in accordance with IFRS 2, such that the fair value of the employee service received in exchange for the grant of the option is recognised in the Income Statement over the related performance period. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example profitability growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exerciseable. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exerciseable. It recognises the impact of the revision of original estimates in the Income Statement, with a corresponding adjustment to equity.
The proceeds received net of any directly attributable transaction costs are credited to share capital and share premium when the options are exercised.
Goodwill
Business combinations are accounted for by applying the purchase method. The excess of the cost of the business combination over the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities, recognised in accordance with IFRS 3, Business Combinations, constitutes goodwill, and is recognised as an asset. Where the interest in the net fair value of the identifiable assets, liabilities and contingent liabilities is greater than the cost of the business combination, it is recognised immediately in the Income Statement. Goodwill on acquisition of subsidiaries is included in "Goodwill". Goodwill on acquisition of associates and joint ventures is included in "Investments accounted for using equity method".
After initial recognition, goodwill is measured at cost less any accumulated impairment losses, until disposal or termination of the previously acquired business. The profit or loss on disposal or termination will be calculated after charging the book amount, at current exchange rates, of any such goodwill through the Income Statement. Goodwill is tested for impairment at least annually, and whenever there are indications that goodwill may have become impaired (including planned disposal or termination where there are indications that the value of the goodwill has been permanently impaired). Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or group of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
Goodwill arising on acquisitions before 1 January 2004, the date of transition to International Financial Reporting Standards, has been retained at the previous UK GAAP amounts, subject to being tested for impairment at that date. The Group's policy up to and including 28 February 1998 was to eliminate goodwill arising upon acquisitions to reserves. Under IFRS 1 and IFRS 3, such goodwill will remain eliminated against reserves and is not included in determining any subsequent profit or loss on disposal.
Other intangible assets
Other intangible assets are valued at cost less any accumulated amortisation and any accumulated impairment losses. Costs that are directly associated with identifiable and unique software products controlled by the Group and which have probable economic benefits exceeding the cost beyond one year, are recognised as intangible assets. Costs associated with maintaining computer software or that are not directly associated with identifiable and unique software products are expensed as incurred. Computer software programs are amortised on a straight-line basis over periods varying between two and five years.
Vehicles not subject to manufacturer repurchase agreements
Vehicles are initially measured at cost. This cost comprises the purchase price (including any import duties and non-refundable purchase taxes, after deducting trade discounts and rebates), plus any costs directly attributable to bringing the vehicle to the location and condition necessary for it to be capable of operating. After initial recognition, the vehicle is carried at its cost less any accumulated depreciation and any accumulated impairment losses. Straight-line depreciation is based on initial cost, after consideration of expected holding periods and estimates of residual values. Where the carrying amount of a vehicle is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use.
Other property, plant and equipment
Other property, plant and equipment is initially measured at cost. This cost
comprises the purchase price (including any import duties and non-refundable
purchase taxes, after deducting trade discounts and rebates), plus any costs
directly attributable to bringing the asset to the location and condition necessary
for it to be capable of operating. If applicable, initial estimates of the cost of
dismantling and removing the item and restoring the site are also included in
the cost of the item.
After initial recognition, the assets are carried at cost less any accumulated depreciation and any accumulated impairment losses. The depreciable amount of the item is allocated according to the straight-line method over its useful economic life. The main useful lives are as follows:
| a) Buildings: | 40 to 50 years; |
| b) Plant and equipment: | 3 to 15 years; |
| c) Leased assets: | depending on the length of the lease. |
Where the carrying amount of a fixed asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use and is determined for an individual asset.
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Operating leases for which the Group is the lessor
Rental income is recognised on a straight-line basis over the lease term. Unless
the vehicles themselves are held under operating leases for which the Group is
the lessee, vehicles leased out under operating leases are included in vehicles
in the balance sheet. They are depreciated over their expected useful lives.
