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Finsbury Food Group Annual Report and Accounts 2020


Notes to the Consolidated Financial Statements/Continued


1. Significant Accounting Policies/Continued In applying IFRS 16 Leases for the first time, the Group has used the following practical expedients permitted by the standard:


• The use of a single discount rate for portfolios of leases with reasonably similar characteristics; • Accounting for low value (less than $5,000) and certain leases with a remaining lease term of less than 12 months as at 29 June 2019 on straight-line basis as an expense without recognising a right of use asset or a lease liability; and


• The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.


Under IFRS 16 leases excluding low value and those with a remaining term of less than 12 months as at 29 June 2019 are recognised in the opening Consolidated Statement of Financial Position on 30 June 2019. Under IFRS 16 the previous leases charge has been replaced by the depreciation on the right of use asset and interest on the lease liability.


Prior to this change, leases of property, plant and equipment where the company, as lessee, had substantially all the risks and rewards of ownership were classified as finance leases. Finance leases were capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, were included in creditors: amounts falling due within 12 months and the long-term component was included in creditors: amounts falling due after more than one year.


Each lease payment was allocated between the liability and finance cost. The finance cost was charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases was depreciated over the asset’s useful life, or over the shorter of the asset’s useful life and the lease term if there was no reasonable certainty that the company would obtain ownership at the end of the lease term.


Leases in which a significant portion of the risks and rewards of ownership were not transferred to the company as lessee were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight- line basis over the period of the lease.


Intangible Assets and Goodwill Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. Intangible assets are capitalised separately from goodwill as part of a business combination, only if the fair value can be measured reliably on initial recognition and if the future economic benefits are expected to flow to the Group. All intangible assets recognised are considered to have finite lives and are amortised on a straight-line basis over their estimated useful economic lives that range from 15 to 20 years. Goodwill arises when the fair value of the consideration for the business exceeds the fair value of the net assets acquired. Where the excess is negative (negative goodwill), the amount is taken to retained earnings. Goodwill is capitalised and subject to impairment reviews both annually and where there are indications that the carrying value may not be recoverable.


Impairment The carrying amounts of the Group’s intangible assets and goodwill are reviewed at each period end date to determine whether there is an indication of impairment. Intangible assets and goodwill are considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. If any such indication exists, the asset’s recoverable amount is estimated.


For goodwill and intangible assets that have an indefinite useful life, the recoverable amount is estimated at each period end date.


An impairment loss would be recognised whenever the carrying amount of an intangible asset, goodwill or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the Consolidated Statement of Comprehensive Income.


Calculation of Recoverable Amount The recoverable amount is the greater of the asset’s fair value less costs to sell and its value in use. In assessing an assets’ value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.


Inventories Inventories are measured at the lower of cost and net realisable value. Cost is determined on the first-in first-out basis, and includes all direct costs incurred and attributable production overheads. Net realisable value is based upon estimated selling price, allowing for all further costs of completion and disposal. Specific provisions are made against old and obsolete stock taking the value to zero or an estimated reduced value based on the most likely route for disposal of each particular item of stock.


Employee Benefits


Defined Benefit Plans Memory Lane Cakes Ltd operates a defined benefit pension scheme and the pension costs are charged to the Consolidated Statement of Comprehensive Income in accordance with IAS 19 (revised), with current and past service cost being recognised as an administrative expense, interest on assets and liabilities is shown as finance income or a finance cost in the Consolidated Statement of Comprehensive Income. The remeasurements are recognised in full in Other Comprehensive Income.


Defined Contribution Plans The costs of contributing to defined contribution and personal pension schemes are charged to the Consolidated Statement of Comprehensive Income as an administrative expense in the period to which they relate.


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