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Accounting policies
Basis of accounts
These accounts have been prepared under the historical cost
convention as modified by the revaluation of certain properties.
They comply with all applicable accounting and financial reporting
standards. No Profit and Loss Account is presented for the
Company as provided by section 230(3) of the Companies Act 1985.
A number of new accounting standards have been issued which
have been adopted for the accounts for the 56 week period ended
3 April 1999. These new standards have required the Group to
change its accounting policies and in certain circumstances to
provide a greater level of disclosure in the accounts.
In accordance with FRS 12, Provisions, Contingent Liabilities and
Contingent Assets, the Group has changed its accounting policy for
provisions. Specifically, the exceptional provisions relating to Texas
Homecare integration costs which were provided in the year ended
9 March 1996 (£48 million) and in the year ended 8 March 1997
(£50 million) have been reversed as these amounts cannot be
treated as provisions under the new standard. Having reversed
these provisions, the current period and prior year Profit and Loss
Accounts include the actual costs incurred in the respective periods
for the integration of Texas Homecare. These costs are separately
identified on the face of the Profit and Loss Account. An analysis of
the effect of this change in accounting policy is set out in note 23.
FRS 10, Goodwill and Intangible Assets, has been adopted resulting
in a change to the Group’s accounting policy for goodwill as detailed
further below.
FRS 13, Derivatives and Other Financial Instruments: Disclosures,
has been adopted and requires a greater level of disclosure in
relation to the Group’s financial instruments. This disclosure
is set out in note 21 of the accounts and also on page 21 in the
Financial Review.
FRS 14, Earnings Per Share, has been adopted in the period. This
standard requires a change in the basis of the calculation of diluted
earnings per share, as set out further in note 10.
FRS 15, Tangible Fixed Assets, has been adopted during the year.
Under this accounting standard interest capitalised on borrowings
for financing property developments is required to be capitalised
gross of tax relief. In previous years the Group has capitalised
interest net of tax relief. Prior year amounts capitalised net of tax
relief have not been restated due to immateriality.
34 J Sainsbury plc Annual report and accounts 1999
All the key activities of the Group are continuing businesses. The
Group disposed of its investment in Giant Food Inc. on 28 October
1998. The Group’s share of operating profit from Giant Food Inc. in
the 56 week period ended 3 April 1999 is not sufficiently material
to warrant separate disclosure of those amounts as discontinued
operations on the face of the Group’s Profit and Loss Account.
Consolidation
The results of subsidiaries and Associated Undertakings are
included in the Group Profit and Loss Account from the date of
acquisition, or in the case of disposals, up to the effective date
at which the investment is sold.
Goodwill arising in connection with the acquisition of shares in
subsidiaries and Associated Undertakings is calculated as the
excess of the purchase price over the fair value of the net tangible
assets acquired. In prior years goodwill has been deducted from
reserves in the period of acquisition. FRS 10 is applicable in the
current financial year, and in accordance with the standard acquired
goodwill is now shown as an asset on the Group’s Balance Sheet.
As permitted by FRS 10, goodwill written off to reserves in prior
periods has not been restated as an asset.
Goodwill is treated as having an indefinite economic life where it is
considered that the acquired business has strong customer loyalty
built up over a long period of time, based on advantageous store
locations and a commitment to maintain the marketing advantage
of the retail brand. The carrying value of the goodwill will be
reviewed annually for impairment and adjusted to its recoverable
amount if required. Where goodwill is considered to have a finite
life, amortisation will be applied over that period.
The Companies Act 1985 requires companies to amortise
capitalised goodwill over a finite period. However, the Act allows
companies to depart from these requirements to the extent
necessary to provide a true and fair view. In respect of goodwill
which is treated as having an indefinite economic life, the Directors
consider that the policy adopted is appropriate in order to provide
a true and fair view of the final position of the Group, for the
reasons given above. For amounts stated as goodwill which are
considered to have an indefinite life, no amortisation is charged
to the Profit and Loss Account.
Sales
Sales consist of sales through retail outlets, sales of development
properties and, in the case of Sainsbury’s Bank plc, interest
receivable, fees and commissions. Rental and other income is
included in cost of sales.