Cosalt plc Annual report & financial statements 2008

Financial statements
Notes to the financial statements
(b) Operating leases
Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the relevant
lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over
the lease term.
(c) Rental garments
Garments hired out under rental contracts where the Group retains substantially all of the risks and rewards of ownership are
capitalised and accounted for as operating leases. The garments are depreciated on a straight-line basis over their estimated useful
lives (typically two to five years). Revenue from these rental contracts accrues on a straight-line basis over the life of the contract.
p Financial instruments
(a) Trade receivables
Trade receivables are initially measured at fair value, do not carry any interest, and are reduced by appropriate provisions
for estimated irrecoverable amounts. Such provisions are recognised in the income statement.
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments with
original maturities of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant
risk of changes in value.
(c) Trade payables
Trade payables are not interest bearing and are initially measured at their fair value, thereafter amortised cost.
(d) Borrowings
Bank overdrafts, short-term fixtures and interest bearing loans are initially measured at fair value, and obligations under
finance leases are dealt with in accordance with the Group’s policy on leases (note o). These items are subsequently carried
at a amortised cost.
(e) Equity instruments
Equity instruments issued are recorded at the proceeds received, net of direct issue costs.
(f) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
Financial instruments issued by the Group are treated as equity (ie forming part of Shareholders’ funds) only to the extent that they
meet the following conditions:
• they include no contractual obligation to deliver cash or other financial assets or to exchange financial assets or financial liabilities
under conditions that are potentially unfavourable to the Group; and
• where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the
Company exchanging a fixed amount of cash or other financial instrument for a fixed number of its own equity instruments.
Dividends on non-equity shares are recognised as a liability and expensed on an accrual basis. Equity dividends are recognised
as a liability in the period in which they are paid or approved by Shareholders, and recorded directly in equity.
(g) Derivative financial instruments
Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised
immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss
depends on the nature of the item being hedged.
Forward exchange contracts are valued at their quoted market price at the balance sheet date.
Where a derivative financial instrument is designated as a hedge of the variability of cash flows of a recognised asset or liability
or highly probable forecast transactions, the effective part of any gain or loss on the derivative financial instrument is recognised
directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the income statement.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge
accounting is discontinued prospectively. Any cumulative gain or loss on the hedging instrument in equity remains there until the
forecast transaction occurs.
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