Annual Report and Accounts 2006 - DCC plc

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62notes to the financial statements1. Summary of significant accounting policies - continuedFollowing initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill relating toacquisitions from 1 April 2004 and goodwill carried in the Balance Sheet at 1 April 2004 is not amortised. Goodwill isreviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying valuemay be impaired.The carrying amount of goodwill in respect of associates, net of any impairment, is included in investments in associatesunder the equity method in the Group Balance Sheet.Goodwill was tested for impairment as at 1 April 2004, the date of transition to IFRS, and no impairment resulted fromthis exercise.Goodwill acquired in a business combination is allocated, from the acquisition date, to the respective cash-generatingunits. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.Goodwill is subject to impairment testing on an annual basis and at any time during the year if an indicator of impairmentis considered to exist; the goodwill impairment tests are undertaken at a consistent time in each annual period.Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates.Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss isrecognised. Impairment losses arising in respect of goodwill are not reversed following recognition.Where goodwill forms part of a cash-generating unit and part of the operation within that unit are disposed of, thegoodwill associated with the operation disposed of is included in the carrying amount of the operation when determiningthe gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of therelative values of the operation disposed of and the proportion of the cash-generating unit retained.Intangible assets (other than goodwill)Intangible assets acquired separately are capitalised at cost. Intangible assets acquired in the course of a businesscombination are capitalised at fair value being their deemed cost as at the date of acquisition.Following initial recognition, intangible assets which have a finite life are carried at cost less any applicable accumulatedamortisation and any accumulated impairment losses. Where amortisation is charged on assets with finite lives thisexpense is taken to the Income Statement.The amortisation of intangible assets is calculated to write-off the book value of intangible assets over their useful lives ona straight-line basis on the assumption of zero residual value. In general, definite-lived intangible assets are amortised overperiods ranging from three to five years, depending on the nature of the intangible asset.LeasesProperty, plant and equipment, acquired under a lease which transfers substantially all of the risks and rewards ofownership to the Group, are capitalised as property, plant and equipment and are depreciated over their useful lives withany impairment being recognised in the Income Statement. Amounts payable under such leases (finance leases), net offinance charges, are shown as short, medium or long term lease obligations, as appropriate. Finance charges on financeleases are charged to the Income Statement over the term of the lease so as to produce a constant periodic rate ofinterest on the remaining balance of the liability.Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Theannual rentals under operating leases are charged to the Income Statement on a straight-line basis over the lease term.InventoriesInventories are valued at the lower of cost and net realisable value.Cost is determined on a first in first out basis and in the case of raw materials, bought-in goods and expense inventoriescomprises purchase price plus transport and handling costs less trade discounts and subsidies. Cost, in the case ofproducts manufactured by the Group, consists of direct material and labour costs together with the relevant productionoverheads based on normal levels of activity. Net realisable value represents the estimated selling price less costs tocompletion and appropriate selling and distribution costs.Provision is made, where necessary, for slow moving, obsolete and defective inventories.
notes to the financial statements631. Summary of significant accounting policies - continuedTrade and other receivables and payablesTrade and other receivables and payables are stated at cost, which approximates to fair value given the short-dated natureof these assets and liabilities.A provision for impairment of trade receivables is established when there is objective evidence that the Group will not beable to collect all amounts due according to the original terms of receivables. The amount of the provision is thedifference between the asset’s carrying amount and the present value of estimated future cash flows. The amount of theprovision is recognised in the Income Statement.Cash and cash equivalentsCash and cash equivalents comprise cash at bank and in hand and short term deposits with an original maturity of threemonths or less.Derivative financial instruments - accounting policy for the year ended 31 March 2006The Group uses derivative financial instruments (principally interest rate, currency and cross currency interest rate swapsand forward foreign exchange and commodity contracts) to hedge its exposure to interest rate and foreign exchange risksand to changes in the prices of certain commodity products arising from operational, financing and investment activities.Derivative financial instruments are recognised on inception at fair value, being the present value of estimated future cashflows. The method of recognition of gains or losses on subsequent re-measurement of fair value depends on the natureof the item being hedged.HedgingFor the purposes of hedge accounting, hedges are designated either as fair value hedges (which entail hedging theexposure to movements in the fair value of a recognised asset or liability or a firm commitment that are attributable tohedged risks) or cash flow hedges (which hedge exposure to fluctuations in future cash flows derived from a particularrisk associated with a recognised asset or liability or a highly probable forecast transaction).Fair value hedgeIn the case of fair value hedges which satisfy the conditions for hedge accounting, any gain or loss arising from the remeasurementof the fair value of the hedging instrument is reported in the Income Statement within ‘Finance Costs’. Inaddition, any gain or loss on the hedged item which is attributable to the hedged risk is adjusted against the carryingamount of the hedged item and reflected in the Income Statement within ‘Finance Costs’.If a hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of the hedged item isamortised to the Income Statement over the period to maturity.Cash flow hedgeWhere a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised assetor liability or a highly probable forecasted transaction, the effective part of any gain or loss on the derivative financialinstrument is recognised as a separate component of equity with the ineffective portion being reported in the IncomeStatement. When a forecast transaction results in the recognition of an asset or a liability, the cumulative gain or loss isremoved from equity and included in the initial measurement of the asset or liability. Otherwise, the associated gains orlosses that had previously been recognised in equity are transferred to the Income Statement in the same reportingperiod as the hedged transaction.When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, anycumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction isultimately recognised in the Income Statement. When a forecast transaction is no longer expected to occur, thecumulative gain or loss that was reported in equity is immediately transferred to the Income Statement.Derivative financial instruments - accounting policy for the year ended 31 March 2005Gains and losses on derivative contracts used to hedge foreign exchange and commodity price trading exposures wererecognised in the Income Statement when the hedged transactions occurred.Gains and losses on foreign currency swap agreements used to convert US dollar borrowings into euro and sterlingborrowings were deferred to be recognised on the maturity of the underlying debt, together with the matching loss orgain on the debt.Amounts payable or receivable in respect of interest rate swap agreements and similar contracts used to manage interestrate exposures were recognised as adjustments to interest expense over the period of the contracts.
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Annual Reportand Accounts2006
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Group at a Glance 2Board of Directo
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3Market positionGrowth focusGrowth
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6board of directors
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8senior managementgroup and divisio
Page 12 and 13: 10chairman’s statement“ Over th
Page 14 and 15: 12chief executive’s review“ The
Page 16: peopleWe recognise that our employe
Page 19 and 20: 17Performance for the year to 31 Ma
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Page 30 and 31: 28financial reviewOverview of resul
Page 32 and 33: 30financial reviewgenerated from op
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Page 41 and 42: corporate governance39written terms
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Page 52 and 53: 50 report of the independent audito
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DCC plcDCC House, Brewery Road,Stil
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Annual Report and Accounts 2006 - DCC plc

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