Annual report and financial statements 2009
These separate financial statements of Wm Morrison Supermarkets PLC (the Company) have been prepared on a going concern basis under the historic cost convention, except for share-based payments and derivative financial instruments which are measured at fair value, and pension scheme liabilities that are measured using actuarial valuations and in accordance with applicable accounting standards under UK GAAP and the Companies Act 1985.
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company’s financial statements.
The accounting period of the Company ends on the Sunday falling between 29 January and 4 February each year.
Investments in subsidiary undertakings are stated at cost less provision for impairment.
Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses. Costs include directly attributable costs. Annual reviews are made of estimated useful lives and material residual values.
The policy of the Company is to provide depreciation at rates which are calculated to write off the cost less residual value of tangible fixed assets on a straight line basis. The rates applied are:
|Freehold and long leasehold buildings||2.5%|
|Short leasehold improvements||Over lease period|
|Plant, equipment, fixtures and vehicles||14-33%|
|Assets under construction||0%|
Fixed assets are reviewed for indications of impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. This is performed for each income generating unit, which in the case of a supermarket is an individual retail outlet. If there are indications of possible impairment then a test is performed on the asset affected to assess its recoverable amount against carrying value. An asset impaired is written down to its recoverable amount which is the higher of value in use or its net realisable value. 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.
If there is indication of an increase in fair value of an asset that had been previously impaired, then this is recognised by reversing the impairment, but only to the extent that the recoverable amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised for the asset.
Financial assets and liabilities are recognised on the Company’s balance sheet when the Company becomes a party to the contractual provisions of the instrument.
i) Trade and other debtors: Trade and other debtors are carried at the lower of their original invoiced value and recoverable amount. Provision is made when there is objective evidence that the Company will not be able to recover balances in full, with the charge being recognised in the profit and loss account. Balances are written off when the probability of recovery is assessed as being remote.
ii) Cash: Cash includes cash-in-hand, cash-at-bank and bank overdrafts together with short term, highly liquid investments that are readily convertible into known amounts of cash, with an insignificant risk of a change in value, within three months from the date of acquisition. In the balance sheet bank overdrafts are presented within current liabilities.
Trade and other creditors: Trade and other creditors are stated at cost.
Derivative financial instruments are initially measured at fair value, which normally equates to cost, and are remeasured at fair value through profit or loss.
Cash flow hedges: Derivative financial instruments are classified as cash flow hedges when they hedge the Company’s exposure to variability in cash flows that are either attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecasted transaction.
To minimise the risk from potential movements in commodity prices, the Company has fuel price contracts which are designated as cash flow hedges.
Derivatives are reviewed quarterly for effectiveness. Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or highly probable forecast transaction, the effective part of any gain or loss on the movement in fair value of the derivative financial instrument is recognised directly in equity through the Statement of recognised gains and losses (STRGL).
The gain or loss on any ineffective part of the hedge is immediately recognised in the profit and loss account within cost of sales. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or liability, the associated cumulative gains or losses that were recognised directly in equity are reclassified into the profit and loss account when the transaction occurs.
All borrowing costs are recognised in the Company’s profit and loss account on an accruals basis except for interest costs that are directly attributable to the construction of buildings which are capitalised and included within the initial cost of a building. Capitalisation of interest cost ceases when the property is ready for use.
The Company operates defined benefit and defined contribution schemes. The defined benefit scheme is no longer open to new members. A defined contribution scheme is a pension scheme under which the Company pays fixed contributions into a separate entity. A defined benefit scheme is one that is not a defined contribution scheme. Pension benefits under defined benefit schemes are defined on retirement based on age at the date of retirement, years of service and employee’s final compensation package.
The Company’s defined benefit retirement scheme is funded by contributions from the Company and members. Pension scheme assets, which are held in separate trustee administered funds, are valued at market rates. Pension scheme obligations are measured on a discounted present value basis using assumptions set out in note 39. The operating and financing costs of the scheme are recognised in the profit and loss account in the period in which they arise.
Death-in-service costs are recognised on a straight line basis over their vesting period. Actuarial gains and losses are recognised immediately in the statement of recognised gains and losses.
A liability or asset is recognised in the balance sheet in respect of the Company’s net obligations to the scheme and is stated net of deferred tax.
The Company also operates a stakeholder pension scheme and contributions are charged to the profit and loss account as they arise.