Wm Morrison Supermarkets PLC Company financial statements under UK GAAP

Foreign currencies

Transactions in foreign currencies are recorded at the rates of exchange at the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currency are retranslated at the rates of exchange at the balance sheet date. Gains and losses arising on retranslation are included in the profit and loss account for the period.

Provisions

Provisions are created where the Company has a present legal or constructive obligation as a result of a past event, where it is probable that it will result in an outflow of economic benefits to settle the obligation from the Company, and where it can be reliably measured. The nature of these provisions are:

a) Property provisions: Provisions made in respect of individual properties where there are obligations for onerous contracts, dilapidations and certain decommissioning obligations for petrol filling stations. The amounts provided are based on the Company’s best estimate of the likely committed outflow to the Company. Where material, these estimated outflows are discounted to net present value.

b) Restructuring provisions: Provisions are established for announced and ongoing restructuring programmes planned and controlled by management where there is an obligation to make changes to the scope of the business undertaken by the Company or the manner in which business is conducted. The provision includes costs of severance to the affected employees, costs of property closure, and other direct expenditures not associated with ongoing activities.

Leases

Leases in which substantially all the risks and rewards of ownership are retained by the lessor are classified as operating leases; all other leases are classified as finance leases.

Lessor accounting – operating leases

Assets acquired and held for use under operating leases are recorded as fixed assets and are depreciated on a straight line basis to their estimated residual values over their estimated useful lives. Operating lease income is recognised on a straight line basis to the date of the next rent review.

Lessee accounting – operating leases

Rental payments are taken to the profit and loss account on a straight line basis over the life of the lease.

Deferred and current taxation

Current tax payable is based on the taxable profit for the year using tax rates enacted or substantively enacted at the reporting date. Taxable profit differs from the profit as reported in the profit and loss account as it is adjusted both for items that will never be taxable or deductible and timing differences.

Deferred tax is provided in full on timing differences between the accounting and tax cost bases that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date. Deferred tax is calculated based on tax law enacted or substantively enacted by the balance sheet date and is provided at rates that are expected to apply when the timing differences reverse. Deferred tax assets are recognised to the extent that it is more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.

Stocks

Stocks are measured at the lower of cost and net realisable value. Cost is calculated on a weighted average basis and comprises purchase price, import duties and other non-recoverable taxes, less rebates. Stocks are primarily goods for resale.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale.

Share-based payments

The Company issues equity-settled share-based payments to certain employees in exchange for services rendered by them. The fair value of the share-based award is calculated at the date of grant and is expensed on a straight line basis over the vesting period with a corresponding increase in equity. This is based on the Company’s estimate of share options that will eventually vest. This takes into account movement of non-market conditions, being service conditions and financial performance, if relevant. The fair value of equity-settled awards granted is not subsequently revisited.

Fair value is measured by use of a Binomial stochastic model. The expected life used in the model has been adjusted, based on management’s best estimate, for effects of non-transferability, exercise restrictions and behavioural considerations.

The cost of the share-based award relating to each subsidiary is calculated, based on an appropriate apportionment, at the date of grant and recharged through an intercompany account. The charge to reserves is retained within the Company’s retained earnings.

Financial contracts

Where the Company enters into financial contracts to guarantee the indebtedness of other companies within its Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Where the Company has purchased its own equity share capital, the consideration paid, including directly attributable incremental costs, is deducted from retained earnings until the shares are cancelled. On cancellation, the nominal value of the shares is deducted from share capital and the amount is transferred to the capital redemption reserve.

Exemptions

The Company has also taken advantage of the exemption from preparing a cash flow statement under the terms of FRS 1 Cash Flow Statement and exemption from the disclosure requirements of FRS 29 Financial instruments disclosures. The cash flows of the Company and financial instruments disclosures are included in the consolidated financial statements.

The Company is also exempt under the terms of FRS 8 Related Parties from disclosing related party transactions with entities that are part of the Wm Morrison Supermarkets PLC Group.

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