Annual Report and Accounts 2016


John Lewis Partnership plc


121


3 Operating assets and liabilities (continued)


3.2 Property, plant and equipment Our balance sheet contains significant property, plant and equipment, primarily made up of branches, distribution centres, offices and vehicles.


This note shows the cost of the assets, which is the amount we initially paid for them, or deemed cost if the assets were purchased before January 2004. It also details any additions and disposals during the year. Additionally, the note shows depreciation, which is an expense in the income statement representing the usage of these assets. Depreciation is calculated by estimating how many years we expect to use the assets, which is also known as the useful life. The depreciation charge reduces the initial value of the assets over time spread evenly over their useful lives. The value after deducting depreciation is known as the net book value.


Each year we review the value of our assets to ensure that the value in use or resale value has not fallen below their net book value. This might occur where there is a decline in the forecasted performance of the brand or business unit. If an asset value falls below its net book value, this is reflected through an additional one off impairment expense, which reduces profit.


Accounting policies


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:


a Freehold and long leasehold buildings – 2% to 4% aOther leaseholds – over the shorter of the useful economic life and the remaining period of the lease a Building fixtures – 2.5% to 10%; and a Fixtures, fittings and equipment (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.


Impairment: Assets are reviewed for impairment whenever events or circumstances indicate that the net book value may not be recoverable. Impairment testing is on cash generating units which are branches, being the lowest level of separately identifiable cash flows. An impairment loss is recognised for the amount by which the asset’s net book value exceeds its recoverable amount, the latter being the higher of the asset’s fair value less costs to dispose and value in use. Value in use calculations are performed using cash flow projections, discounted at a pre-tax rate, which reflects the asset specific risks and the time value of money.


Critical accounting estimates and judgements


Impairment: The Partnership 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.


Depreciation: Depreciation is recorded to write down non-current assets to their residual values over their estimated useful lives. The selection and review of these residual values and estimated useful lives requires the exercise of management judgement.


It’s Your Results


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