Annual Report - JD Group

are allocated using the effective interest rate method to determine
the lease finance cost, which is charged against operating income
and the capital repayment, which in turn reduces the liability to
the lessor. These assets are depreciated on the same basis as the
property, plant and equipment owned by the Group over the
period of the lease.
Other leases, which merely confer the right to the use of an asset,
are treated as operating leases, with lease payments charged
against operating income systematically over the period of the lease.
Inventories
Inventories comprise merchandise for resale and are valued at
the lower of cost and net realisable value. Cost is determined on
the weighted average cost basis. Adequate provision is made for
obsolete and slow moving inventories.
Financial instruments
Financial assets and financial liabilities are recognised on the
Group’s balance sheet when the Group has become a party to the
contractual provisions of the instrument. All financial instruments
are recorded at cost, including transaction costs, at initial
recognition date. Subsequent to initial recognition these
instruments are measured as set out below.
Investments
Investments in securities are recognised on a trade date basis and
are initially measured at cost including transaction costs.
At subsequent reporting dates, where the Group has the intention
and ability to hold the investment to maturity, the investment is
measured at amortised cost less any provision for impairment.
Trade receivables
Trade receivables are stated at their nominal value as reduced by
appropriate allowances for estimated irrecoverable amounts
based on estimated future cash flows discounted at the effective
rate implicit to each contract. Bad debts are written off during the
year in which they are identified.
Trade payables
Trade payables are recorded at their nominal value. An adjustment
is made to the carrying value to take into account the imputed
interest relating to the extended terms received from suppliers,
where the terms are beyond the normal credit terms in the
industry. A corresponding adjustment is made to cost of sales and
finance costs.
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Derivative financial instruments
The Group uses derivative financial instruments to manage its risk
associated with foreign currency and interest rate fluctuations
relating to certain firm commitments and forecasted transactions.
Such derivatives are initially recorded at cost, if any, and are
remeasured to fair value at subsequent reporting dates.
Changes in the fair value of derivative financial instruments are
recognised in the income statement as they arise.
Derivatives embedded in other financial instruments or nonderivative
host contracts are treated as separate derivatives when
their risks and characteristics are not closely related to those of
host contracts and the host contracts are not carried at fair value
with unrealised gains or losses reported in the income statement.
De-recognition
Financial assets (or a portion thereof) are de-recognised when the
Group realises the rights to the benefits specified in the contract,
the rights expire or the Group surrenders or otherwise loses
control of the contractual rights that comprise the financial asset.
On de-recognition, the difference between the carrying amount of
the financial asset and proceeds receivable and any prior
adjustment to reflect fair value that had been reported in equity
are included in the income statement.
Financial liabilities (or a portion thereof) are de-recognised when the
obligation specified in the contract is discharged, cancelled or
expires. On de-recognition, the difference between the carrying
amount of the financial liability, including related unamortised costs,
and the amount paid for it are included in the income statement.
Fair value methods and assumptions
The fair value of financial instruments traded in an organised
financial market are measured at the applicable quoted prices,
adjusted for any transaction costs necessary to realise the assets or
settle the liabilities.
The fair value of financial instruments not traded in an organised
financial market, is determined using a variety of methods and
assumptions that are based on market conditions and risks
existing at reporting dates, including independent appraisals and
discounted cash flow methods.
The carrying amounts of financial assets and liabilities with a
maturity of less than one year are assumed to approximate their
fair values due to the short term trading cycle of these items.