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Borrowings and borrowing costs
Borrowings are recognised initially at fair value, net of transaction costs
incurred, and subsequently at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption value is recognised in
the income statement over the period of the borrowings using the effective
interest method.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months
from the balance sheet date.
Borrowing costs, being interest and other costs incurred in connection with the
servicing of borrowings, are recognised as an expense when incurred.
provisions
A provision is recognised when the Group has a present legal or constructive
obligation as a result of a past event, it is probable that an outflow of resources
will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation.
The Group provides for dilapidations costs following advice from chartered
surveyors and previous experience of exit costs. The estimated cost of fulfilling
the leasehold dilapidations obligations is discounted to present value and
analysed between non-capital and capital components. The capital element
is recognised as a decommissioning cost and depreciated over the life of the
asset. The non-capital element is taken to the income statement in the first year
of the lease where the cost it represents is of no lasting benefit to the Group
or its landlord. ‘Wear and tear’ costs are expensed to the income statement.
Provisions for onerous lease contracts are recognised when the Group believes
the unavoidable costs of meeting the lease obligations exceed the economic
benefits expected to be received under the lease.
leases
Leases of property, plant and equipment where the Group has substantially all
the risks and rewards of ownership are classified as finance leases. Finance
leases are capitalised at the lease’s inception at the lower of the fair value of
the leased asset and the present value of the minimum lease payments. Each
lease payment is allocated between the liability and finance charges so as to
achieve a constant rate on the finance balance outstanding. The asset subject to
the finance lease is depreciated over the shorter of its useful life and the lease
term. The corresponding rental obligations, net of finance charges, are included
as a liability.
Leases of property, plant and equipment where the Group does not have
substantially all the risks and rewards of ownership are classified as operating
leases. Payments made under operating leases are charged to the income
statement on a straight-line basis over the lease term. Incentives provided by
the lessor are credited to the income statement on a straight-line basis over the
minimum lease term.
Rental income from operating leases where the Group acts as a lessor is
recognised on a straight-line basis over the term of the relevant lease.
derivative financial instruments
The most significant exposure to foreign exchange fluctuations relates to
purchases made in foreign currencies, principally the US dollar. The Group’s
policy is to reduce substantially the risk associated with purchases denominated
in foreign currencies by using forward fixed rate currency purchase contracts,
taking into account any foreign currency cash flows. The foreign exchange
contracts do not meet the criteria for treatment as an effective hedge and
accordingly any gain or loss is recognised immediately in the income statement.
Derivative financial instruments are measured at fair value. Gains or losses on
derivative financial instruments related to financing activities are included in
finance costs when recognised in the income statement.
treasury shares
The purchase price of the Group’s own shares that it acquires is recognised
as ‘Treasury Shares’ within equity. The difference between the market value
and the average purchase price of shares sold out of Treasury is transferred to
retained earnings.
employee Benefit trust
The cost of shares acquired by the Sports Direct Employee Benefit Trust is
recognised within ‘Own share reserve’ in equity.
share-based payments
The Group issues equity-settled share-based payments to certain directors
and employees. These are measured at fair value at the date of grant which is
expensed to the consolidated income statement on a straight-line basis over the
vesting period, based on the Group’s estimate of shares that will eventually vest.
Fair value is measured by use of a Monte Carlo method. The expected life
used in the model has been adjusted, based on management’s best estimate,
for the effects of non-transferability, exercise restrictions, and behavioural
considerations. No share-based payment charge was recognised for the 52
weeks ended 26 April 2009 as the directors did not consider it material to the
Group’s financial results or position.
equity instruments
An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities. Equity instruments
issued by the Group are recorded at the proceeds received, net of any direct
issue costs.
dividends
Dividends are recognised as a liability in the Group’s financial statements and
as a deduction from equity in the period in which the dividends are declared.
Where such dividends are proposed subject to the approval of shareholders,
the dividends are regarded as declared once shareholder approval has been
obtained.
international financial reporting standards (“standards”) in issue but not yet
effective
At the date of authorisation of these consolidated financial statements, the
International Accounting Standards Board (“IASB”) and International Financial
Reporting Interpretations Committee (“IFRIC”) have issued the following
standards and interpretations which are effective for annual accounting
periods beginning on or after the stated effective date. These standards and
interpretations are not effective for and have not been applied in the preparation
of the consolidated financial statements:
• IAS 1 Presentation of Financial Statements (revised 2007) (effective 1
January 2009)
• IAS 23 Borrowing Costs (revised 2007) (effective 1 January 2009)
• Amendment to IAS 32 Financial Instruments: Presentation and IAS 1
Presentation of Financial Statements - Puttable Financial Instruments
and Obligations Arising on Liquidation (effective 1 January 2009)
• IAS 27 Consolidated and Separate Financial Statements (revised 2008)
(effective 1 July 2009)
• Amendment to IFRS 2 Share-based Payment - Vesting Conditions and
Cancellations (effective 1 January 2009)
• Amendments to IFRS 1 First-time Adoption of International Financial
Reporting Standards and IAS 27 Consolidated and Separate Financial
Statements - Costs of Investment in a Subsidiary, Jointly Controlled Entity
or Associate (effective 1 January 2009)
• Improvements to IFRSs (effective 1 January 2009 other than certain
amendments effective 1 July 2009)
• IFRS 3 Business Combinations (revised 2008) (effective 1 July 2009)
• IFRS 8 Operating Segments (effective 1 January 2009)
• IFRIC 12 Service Concession Arrangements (effective 1 January 2008)
• IFRIC 13 Customer Loyalty Programmes (effective 1 July 2008)
• IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction (effective 1 January 2008)
• IFRIC 15 Agreements for the Construction of Real Estate (effective 1
January 2009)
• IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective 1
October 2008)
The directors anticipate the adoption of IAS 1 will have a significant impact
on the presentation of primary statements. The adoptions of the other stated
standards and interpretations in future periods are not expected to have a
material impact on the net assets or results of the Group.
Sports Direct International PLC Annual Report 2009 39