John Lewis Partnership plc annual report and accounts 2012

Notes to the accounts continued

1 Accounting policies (continued)

Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other relevant factors, including expectations of future events that are believed to be reasonable under the circumstances.

The preparation of the financial statements requires management to make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, be likely to differ from the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Retirement benefits

Pension accounting requires certain assumptions to be made in order to value our obligations and to determine the charges to be made to the income statement. These figures are particularly sensitive to assumptions for discount rates, mortality, inflation rates and expected long-term rates of return on assets. Details of assumptions are given in note 24.

Provisions

Provisions recognised at the balance sheet date are detailed in note 20 and include amounts for long leave, insurance claims, service guarantee costs, customer refunds, reorganisation costs, accrued holiday pay and property related costs.

Although provisions are reviewed on a regular basis and adjusted to reflect management’s best current estimates the judgemental nature of these items means that future amounts settled may be different from those provided.

Impairment

The group is required to test whether assets in use in operations have suffered any impairment. The recoverable amounts of cash generating units have been determined based on the higher of fair value less costs to sell and value in use. The calculation of value in use requires the estimation of future cash flows expected to arise from the continuing operation of the cash generating unit and the selection of a suitable discount rate in order to calculate the present value. Given the degree of subjectivity involved, actual outcomes could vary significantly from these estimates.

2 Segmental reporting

In accordance with IFRS 8 ‘Operating Segments’, an operating segment is defined as a business activity whose operating results are reviewed by the chief operating decision maker (‘CODM’) and for which discrete information is available. The group’s CODM is the Partnership Board.

The group’s operating segments have been identified as John Lewis, Waitrose and Corporate and other. Corporate and other principally includes corporate and shared service overheads, transformation costs and the Partnership Services division set up costs. The operating profit of each segment is reported after charging relevant corporate and shared service costs based on the business segments’ usage of corporate and shared service facilities and services.

50