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John Lewis Partnership plc Annual Report and Accounts 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1 Accounting policies (continued) 1.5 Significant accounting policies Revenue
Sales of goods and services are recognised as revenue when the goods have been delivered or the services rendered. Revenue in respect of ‘sale or return sales’ which represents concession income is stated at the value of the margin that the Partnership receives on the transaction. Revenue is also net of Partner discounts and VAT. Revenue is recognised in respect of sales under bill and hold arrangements when the goods are segregated for the customer’s benefit at their request, and made available for delivery.
Sales of gift vouchers are treated as future liabilities, and revenue is recognised when the gift vouchers are redeemed against a later transaction. Certain companies within the Partnership sell products with a right of return, and experience is used to estimate and provide for the value of such returns at the time of sale.
The business is predominantly carried out in the United Kingdom and gross sales and revenue derive almost entirely from that source.
Inventory valuation Inventory is stated at the lower of cost, which is computed on the basis of average unit cost, and net realisable value. Inventory excludes merchandise purchased by the Partnership on a sale or return basis, where the Partnership does not have the risks and rewards of ownership. Slow moving and obsolete inventory is assessed for impairment at each reporting period based on past experience and appropriate provision made.
Employee benefits The Partnership’s principal retirement benefit scheme is a defined benefit pension fund with assets held separately from the Partnership. The cost of providing benefits under the scheme is determined using the projected unit credit actuarial valuation method, which measures the liability based on service completed and allowing for projected future salary increases. The current service cost, which is the increase in the present value of the retirement benefit obligation resulting from employee service in the current year, and gains and losses on settlements and curtailments, which arise on transactions that eliminate part or all of the benefits provided or when there are amendments to terms such that a significant element of future service will no longer qualify for benefits or will qualify only for reduced benefits, are included within operating profit in the consolidated income statement. Past service costs are recognised immediately in the consolidated income statement.
Remeasurements of defined pension schemes due to experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.
There are a number of unfunded pension liabilities, where the actuarially assessed costs of providing the benefit are charged to the consolidated income statement. There are no assets supporting these arrangements.
The Partnership also operates a defined contribution scheme. Contributions are charged in the income statement as they fall due. The Partnership has no further obligations once the contributions have been made.
The Partnership has a scheme to provide up to six months paid leave after 25 years’ service (long leave). The cost of providing the benefits under the scheme is determined actuarially. The current service cost is included within operating profit in the consolidated income statement. The financing elements of long leave are included in finance costs in the consolidated income statement.
Property, plant and equipment The cost of property, plant and equipment includes the purchase price and directly attributable costs of bringing the asset to its working condition for its intended use.
The Partnership’s freehold and long leasehold properties were last valued by the Directors, after consultation with CB Richard Ellis, Chartered Surveyors, at 31 January 2004, at fair value. These values have been incorporated as deemed cost, subject to the requirement to test for impairment in accordance with IAS 36. The Partnership decided not to adopt a policy of revaluation since 31 January 2004.
Other assets are held at cost.
Depreciation No depreciation is charged on freehold land and assets in the course of construction. Depreciation is calculated for all other assets to write off the cost or valuation, less residual value, on a straight line basis over their expected useful life, at the following rates:
– Freehold and long leasehold buildings – 2% to 4%;
– Other leaseholds – over the shorter of the useful economic life and the remaining period of the lease;
– Building fixtures – 2.5% to 10%;
– Fixtures and fittings (including vehicles and information technology equipment) – 10% to 33%.
Property residual values are assessed as the price in current terms that a property would be expected to realise, if the buildings were at the end of their useful economic life. The assets’ residual values and useful lives are reviewed and adjusted if appropriate at least at each balance sheet date.
Leased assets
Assets used by the Partnership which have been funded through finance leases on terms that transfer to the Partnership substantially all the risks and rewards of ownership are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. The interest element of finance lease rentals is charged to the income statement. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
Leases where the Partnership does not retain substantially all the risks and rewards of ownership of the asset are classified as operating leases. Operating lease rental payments, other than contingent rentals, are recognised as an expense in the income statement on a straight- line basis over the lease term. Contingent rentals are recognised as an expense in the income statement when incurred.
Lease premia and inducements are recognised in current and non- current assets or liabilities as appropriate, and amortised or released on a straight-line basis over the lease term.
Sub-lease income is recognised as other operating income on a straight-line basis over the sub-lease term, less allowances for situations where recovery is doubtful.
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