Amounts previously recognised in other comprehensive income are
transferred to the income statement in the periods when the hedged
item affects profit or loss (for instance when the forecast sale
that is hedged takes place). The gain or loss relating to the
effective portion of forward foreign exchange contract hedging
export sales is recognised in the income statement within "sales".
However, when the forecast transaction that is hedged results in
the recognition of a non-financial asset (for example, inventory),
the gains or losses previously recognised in other comprehensive
income are transferred from other comprehensive income and included
in the initial measurement of the cost of the asset. The deferred
amounts are ultimately recognised in cost of goods sold (in case of
inventory).
When a hedging instrument expires or is sold, terminated or
exercised, or the entity revokes designation of the hedge
relationship but the hedged forecast transaction is still expected
to occur, the cumulative gain or loss at that point remains in
other comprehensive income and is recognised in accordance with the
above policy when the transaction occurs. If the hedged transaction
is no longer expected to take place, the cumulative unrealised gain
or loss recognised in other comprehensive income is recognised in
the income statement immediately.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses.
Where parts of an item of property, plant and equipment have
different useful lives, they are accounted for as separate items of
property, plant and equipment.
Leases in which the Group assumes substantially all the risks
and rewards of ownership of the leased asset are classified as
finance leases. Where land and buildings are held under finance
leases the accounting treatment of the land is considered
separately from that of the buildings. Leased assets acquired by
way of a finance lease are stated at an amount equal to the lower
of their fair value and the present value of the minimum lease
payments at inception of the lease, less accumulated depreciation
and impairment losses. Lease payments are accounted for as
described below.
Depreciation is charged to the income statement on a
straight-line basis over the estimated useful lives of each part of
an item of property, plant and equipment. The estimated useful
lives are as follows:
25-30 years
* freehold buildings
life of lease
* leasehold land and buildings
four-25 years
* plant and equipment
three-five years
* fixtures and fittings
four years
* motor vehicles
No depreciation is provided on freehold land.
Included within plant and machinery are assets with a range of
depreciation rates. These rates are tailored to the
nature of the assets to reflect their estimated useful
lives.
Depreciation methods, useful lives and residual values are
reviewed at each balance sheet date.
Intangible assets and goodwill
Subject to the transitional relief in IFRS 1, all business
combinations are accounted for by applying the purchase method.
Goodwill represents amounts arising on acquisition of subsidiaries.
In respect of business acquisitions that have occurred since 1
April 2006, goodwill represents the difference between the cost of
the acquisition and the fair value of the net identifiable assets
acquired. Identifiable intangibles are those which can be sold
separately or which arise from legal rights regardless of whether
those rights are separable.
Goodwill is stated at cost less any accumulated impairment
losses. Goodwill is allocated to cash-generating units and is not
amortised but is tested every half year for impairment.
In respect of acquisitions prior to 1 April 2006, goodwill is
included on the basis of its deemed cost, which represents the
amount recorded under UK GAAP which was broadly comparable save
that only separable intangibles were recognised and goodwill was
amortised. Goodwill written off to reserves under UK GAAP prior to
1998 has not been reinstated.
If the cost of an acquisition is less than the fair value of the
Group's share of the net assets of the subsidiary acquired, the
difference is recognised directly in the income statement.
Other intangible assets
Expenditure on internally generated goodwill and brands is
recognised in the income statement as an expense as incurred.
Other intangible assets that are acquired by the Group are
stated at cost less accumulated amortisation and impairment
losses.
The main classes of intangible assets are computer software and
publishing imprints.
Amortisation
Amortisation is charged to the income statement on a
straight-line basis over the estimated useful lives of intangible
assets unless such lives are indefinite. The estimated useful life
of computer software ranges between three and five years. Other
intangible assets are amortised from the date they are available
for use. The estimated useful lives are three to five years.
Amortisation charges are included under "administrative
expenses" in the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost is based on a combination of weighted average and the
first-in first-out principle and includes expenditure incurred in
acquiring the inventories and bringing them to their existing
location and condition. In the case of manufactured inventories and
work in progress, cost includes an appropriate share of overheads
based on normal operating capacity.
Impairment
The carrying amounts of the Group's assets other than
inventories and deferred tax assets are reviewed at each balance
sheet date to determine whether there is any indication of
impairment. If any such indication exists, the asset's recoverable
amount is estimated.
For goodwill, the recoverable amount is estimated at each
half-year.
An impairment loss is recognised whenever the carrying amount of
an asset or its cash-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income
statement.
Impairment losses recognised in respect of cash-generating units
are allocated first to reduce the carrying amount of any goodwill
allocated to cash-generating units and then to reduce the carrying
amount of the other assets in the unit on a pro rata basis. A
cash-generating unit is the smallest identifiable group of assets
that generates cash inflows that are largely independent of the
cash inflows from other assets or groups of assets.
The recoverable amount of the Group's assets is the greater of
their fair value less costs to sell and value in use.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time, value of
money and the risks specific to the asset. For an asset that does
not generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which the
asset belongs.
An impairment in respect of goodwill is not reversed. In respect
of other assets, an impairment is reversed when there is an
indication that the impairment may no longer exist and there has
been a change in the estimates used to determine the recoverable
amount. An impairment is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if
no impairment had been recognised.
Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event and it is probable that an outflow of economic benefits
will be required to settle the obligation. A provision for
restructuring is recognised when the Group has approved a detailed
and formal restructuring plan and announced its main provisions. If
the effect is material, provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time
is recognised as borrowing costs.
Deferred consideration
Where considered material, the Group calculates deferred
consideration by discounting it to its fair value.
This fair value is used to calculate the total purchase
consideration and hence the goodwill figure. As the discount
unwinds it is charged as a finance expense within the income
statement and added to the deferred consideration creditor.
Revenue recognition
Revenue represents the amounts, net of discounts, allowances for
volume and promotional rebates and other payments to customers
(excluding value added tax) derived from the provision of goods and
services to customers during the year. Sales of goods are
recognised when a Group entity has despatched products to the
customer, legal title has passed and the collectability of the
related receivable is reasonably assured.
Exceptional items
Exceptional items are those items of financial performance
which, because of size or incidence, require separate disclosure to
enable underlying performance to be assessed.
Discontinued operations
A discontinued operation is a component of the Group's business
that represents a separate major line of business or geographical
area that has been disposed of or is held for sale, or is a
subsidiary acquired exclusively with a view to resale.
Classification as discontinued operation occurs upon disposal or
when the operation meets the criteria to be classified as held for
sale, if earlier.
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