Full Annual Report - Inchcape

Section
Three
Financial
statements
Significant accounting judgements and estimates
Judgements
In the process of applying the Group’s accounting policies, the Directors have made the following judgements which have the most
significant effect on the amounts recognised in the consolidated Financial statements.
Revenue recognition on vehicles subject to residual value commitments
Where the Group sells vehicles sourced from within the Group to a finance provider for the purpose of leasing the vehicles to a third
party, and retains a residual value commitment, the sale is not recognised on the basis that the value of these assets will be realised
over the lease period and from the disposal of the vehicles at the end of the lease period.
Consignment stock
Vehicles held on consignment have been included in ‘finished goods’ within ‘inventories’ on the basis that the Group has determined
that it holds the significant risks and rewards attached to these vehicles.
Estimates
The key assumptions concerning the future and other sources of estimation uncertainty at the end of the reporting period, that have
a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are
discussed below:
Product warranty provision
The product warranty provision requires an estimation of the number of expected warranty claims, and the expected cost of labour
and parts necessary to satisfy these warranty claims.
Pensions and other post-retirement benefits
The net retirement benefit asset or liability is calculated based on a number of actuarial assumptions as detailed in note 5. A number of
these assumptions involve a considerable degree of estimation, including the rate of inflation, discount rate and expected mortality rates.
Tax
The Group is subject to income taxes in a number of jurisdictions. Some degree of estimation is required in determining the worldwide
provision for income taxes. There are a number of transactions and calculations for which the ultimate tax determination is uncertain
during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such
differences will impact the current tax and deferred tax provisions in the period in which such determination is made.
In addition, the recognition of deferred tax assets is dependent upon an estimation of future taxable profits that will be available against
which deductible temporary differences can be utilised. In the event that actual taxable profits are different, such differences may
impact the carrying value of such deferred tax assets in future periods.
Goodwill
Goodwill is tested at least annually for impairment in accordance with the accounting policy set out above. The recoverable amount of
cash generating units is determined based on value in use calculations. These calculations require the use of estimates including projected
future cash flows (see note 11).
Property, plant and equipment
Property, plant and equipment is reviewed for impairment if events or circumstances indicate that the carrying value may not be
recoverable. When an impairment review is carried out, the recoverable value is determined based on value in use calculations which
require estimates to be made of future cash flows.
Residual value commitments
The Group has residual value commitments on certain leased vehicles. These commitments are an estimate of future market value at
a specified point in time. The actual market value of vehicles bought back may vary from the committed purchase value.
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