Full Annual Report - Inchcape

Financial statements
Accounting policies continued
Basis of consolidation
The consolidated Financial statements comprise the Financial statements of the parent Company (Inchcape plc) and all of its subsidiary
undertakings (defined as where the Group has control), together with the Group’s share of the results of its joint ventures (defined as
where the Group has joint control) and associates (defined as where the Group has significant influence but not control). The results of
subsidiaries, joint ventures and associates are consolidated as of the same reporting date as the parent Company, using consistent
accounting policies.
The results of subsidiaries are consolidated using the purchase method of accounting from the date on which control of the net assets
and operations of the acquired company are effectively transferred to the Group. Similarly, the results of subsidiaries disposed of cease
to be consolidated from the date on which control of the net assets and operations are transferred out of the Group.
Where the Group acquires the minority interest in a subsidiary, the excess of the purchase cost over the book value of the minority
interest is recorded as an addition to goodwill. No fair value exercise is performed for the acquisition of the minority interest.
Where the Group acquires a controlling interest in a subsidiary with a contractual obligation to purchase the remaining minority, the
acquired company is accounted for as a 100% subsidiary, with the liability for the purchase of the remaining minority recorded as
deferred consideration. Subsequent changes to estimates of the deferred consideration are recorded as additions / reductions to
the amount of goodwill arising on acquisition.
Investments in joint ventures and associates are accounted for using the equity method, whereby the Group’s share of post-acquisition
profits or losses are recognised in the consolidated income statement, and its share of post-acquisition movements in shareholders’
equity are recognised in shareholders’ equity. If the Group’s share of losses in a joint venture or associate equals or exceeds its
investment in the joint venture or associate, the Group does not recognise further losses, unless it has contractual obligations or made
payments on behalf of the joint venture or associate.
Foreign currency translation
Transactions included in the results of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The consolidated Financial statements are presented in Sterling,
which is Inchcape plc’s functional and presentational currency.
In the individual entities, transactions in foreign currencies are translated into the functional currency at the rates of exchange prevailing
at the dates of the individual transactions. Monetary assets and liabilities denominated in foreign currencies are subsequently retranslated
at the rate of exchange ruling at the end of the reporting period. All differences are taken to the consolidated income statement, except
those arising on long-term foreign currency borrowings used to finance or hedge foreign currency investments which on consolidation are
taken directly to shareholders’ equity.
The assets and liabilities of foreign operations are translated into Sterling at the rate of exchange ruling at the end of the reporting period.
The income statements of foreign operations are translated into Sterling at the average rates of exchange for the period. Exchange
differences arising from 1 January 2004 are recognised as a separate component of shareholders’ equity. On disposal of a foreign
operation, any cumulative exchange differences held in shareholders’ equity are transferred to the consolidated income statement.
Revenue, other income and cost of sales
Revenue from the sale of goods and services is measured at the fair value of consideration receivable, net of rebates and any discounts
and includes lease rentals and finance and insurance commission. It excludes sales related taxes and intra-Group transactions.
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably
measured. In practice this means that revenue is recognised when vehicles or parts are invoiced and physically dispatched or when
the service has been undertaken. Revenue from commission is recognised when receipt of payment can be assured.
Where a vehicle is sold to a leasing company and a Group company retains a residual value commitment to buy back the vehicle for
a specified value at a specified date, the sale is not recognised on the basis that the value of the asset will be realised over the lease period
and from the disposal of the vehicle at the end of the lease period. These vehicles are retained within ‘property, plant and equipment’ on
the consolidated statement of financial position at cost, and are depreciated to their residual value over the life of the lease. Total revenue
on a leased vehicle comprises the difference between consideration received and residual value. This sits as deferred revenue on the
consolidated statement of financial position and is released to the consolidated income statement on a straight line basis over the life of the
lease. The residual value commitment, which reflects the price at which the vehicle will be bought back, is held within ‘trade and other
payables’, according to the date of the commitment.
Dividend income is recognised when the right to receive payment is established.
Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be
measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest
rate applicable.
Cost of sales includes the expense relating to the estimated cost of self-insured warranties offered to customers. These warranties form
part of the package of goods and services provided to the customer when purchasing a vehicle and are not a separable product.
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Inchcape plc ¦ Annual Report and Accounts 2009