IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 33 / First-Time Adoption of Internal Financial Reporting Standards (IFRS I )

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tion should be measured at fai r value at grant date. using an option pricing model. and charged against profits over the period between grant date and vesting date. being the vesting period. This treatment has been applied 10 all awards granted but not f ully vested at the date of transition. c. l AS 100Events after the Balance Sh eet Date Under UK GAAP. dividends are recognised in the period 10 which they relate. lAS IO requires that dividends declared after the balance sheet date should not be recognised as a liability at that balance sheet date as the liability does not represent a present obligation as defined by lAS 37. Provisions, Contingent Liabilities. and Contingent Assets. Accordingly the final dividends for 2003104 (£J60.7m) and 2004105 (£J24.3m) are derecognised in the balance sheets for Ap ril 2004 and April 2005 respectively. d. lAS 17-Leases-Treatment of Leasehold Land The Group previously recognised finance leases under the recogn ition criteria set out in SSAP 21. lAS 17 requires the land and building elements ofproperty leases 10 be considered separately. with leasehold land normally being treated as an operating lease. As a consequence. payments made to acquire leasehold land, previously treated as fix ed assets. have been recategorised as prepaid leases and amortised over the life ofthe lease. In addition. the revaluation previously attributed to the land element had been derecognised. e. lAS 17-Leases-Finance Leases Also under the provisions of lAS 17, the building elements 'of certain property leases. classified as operating leases under UK GAAP have been reclassified asfinance leases. The adjustments are to include the fai r value of these leased building s within fixe d assets and to set up the related obliga– tion, net offinance charges, in respect offuture periods, within creditors. f. lAS I7-Leases-Lease In centives Under UK GAAP, leasehold incentives received on entering into property leases were recognised as deferred income on the balance sheet and amortized to the profi t and loss account over the pe– riod 10 the fir st rent review. Under lAS 17, these incentives have to be amortised over the term of the lease. Consequently, as the term of the lease is longer than the period 10 the fir st rent review. amounts previously amortised to the profit and loss accoulll are reinstated on the balance sheet as def erred income and released over the term of the lease. g. lAS 17-Leases-Fixed Rental Uplifts The group has a number of leases that contain predetermined, fi xed rental uplifts. Under lAS 17. it is necessary 10 account for these leases such that the predetermined, fi xed rental payments are recognised on a straight-line basis over the life of the lease. Under UK GAAP. the Group ac– counted f or these property lease rentals such that the increases were charged in the year that they arose. 11. lAS 19-Emp loyee Benefits Previously no provision was made fo r holiday pay. Under lAS 19. Employee Benefits. the expected cost of compensated short-term absences ie.g., holidays) should be recognised when employees render the service that increases their entitlement. As a result. an accrua l has been made f or holi– days earned but not taken. i. lAS 38-Software Assets The cost of developing software used to be written off as incurred. Under lAS 38, Intangible As– sets, there is a requirement 10 capitalise internally generated intangible assets provided certain recognition criteria are met. Results have been adjusted to refl ect the capitalisation and subse– quent amortisation of costs that meet the criteria. As a result expenses previously charged 10 the profit and loss accoulll have been brought 0 1110 the balance sheet as intangible softw are assets and amortised over their estimated useful lives. j. lAS 38-Goodwill Goodwill used 10 be capitalised and amortised over its usef ul economic life. Under lAS 38, Intan– gible Assets, there is a requirement to separately identify brands and other intangibles acquired rather than include these as part of goodwill. Intangible assets. other than goodwill, are amor– tised over their useful lives. Goodwill, which is considered to have an indefinite life. is subject to an annual impairment review. As a result, the goodwill recognised under UK GAAP on the acqui– sition of per una of £J25.5m has been split between brand (£80m) and goodwill (£45.5m). The goodwill amortisation under UK GAAP has been reversed but the brand has been amortised as re– quired under IFRS. Cas h Flow Sta tement The cash flows reported under IFRS relate to movements in cash and cash equi valents (defined as short-term highly liquid investments that are readily convertib le into known amounts of cash and subject to insignificant risk of changes in value). Under UK GAAP, only the movement in cash (defined as cash in hand and deposits repayable on demand, less overdrafts) were reported in the cash flow statement. As a result of adopting IFRS, a £55.7m movement in cash equivalents in the year to April 2, 2005 is now reported as a cash flow movement rather than as movement in financial invest– ment.