Example Financial Statements
Introduction These illustrative financial statements are an example of a group and parent company financial statements prepared for the first time in accordance with FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. Their preparation involved striking a balance between helpful guidance and burdensome detail. The disclosures illustrated, therefore, do not include all possible disclosures as this would clearly make any guidance too unwieldy to be of wide, practical use. For this reason they should not be used as a substitute for completing a disclosure checklist. Whilst every care has been taken in their preparation, users are advised to use these financial statements as a guide in conjunction with the actual text of the standard and implementation guidance issued, together with relevant legislation, and to consult their professional advisers before concluding on accounting treatments and disclosures for their own transactions and circumstances. To assist the user further, disclosure requirements introduced by FRS 102 or areas of difference in comparison to existing UK GAAP have been highlighted. Furthermore, two appendices have been included to illustrate a: Statement of Comprehensive Income presented as one statement instead of two (as permitted by FRS 102.5.2(a)) Statement of Income and Retained Earnings (as permitted by FRS 102.6.4 in certain circumstances). In addition, source references for the illustrative disclosures have been included in the right hand margin of the financial statements. Examples of source references used are: 4.14 Paragraph 4.14 of FRS 102 s408 Section 408 of the Companies Act 2006 Sch 1.66(1) Paragraph 66(1) of Schedule 1 to Statutory Instrument 2008, Number 410 The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 Conversion report page 13 Grant Thornton guidance 'Key Issues on Conversion to FRS 102' page 13 FRC Guidance FRC guidance on Going Concern and Liquidity Risk for Directors of UK Companies 2009 SI 2008/489 The Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 Tech 14/13 ICAEW Guidance: Disclosure of auditor remuneration 2014 Grant Thornton UK LLP. All rights reserved
CONSOLIDATED INCOME STATEMENT Note 2015 2014 Turnover 5 5.7C Cost of sales Gross profit Administrative expenses Other operating income Operating profit 5.9B Share of operating profits of associates 14.14 Interest receivable and similar income Interest payable and similar charges 11.48(b) 23.30(b)(iii) 11.48(b) Sch 1.66(1) Profit on ordinary activities before taxation 6 Tax on profit on ordinary activities 8 Profit for the financial year Profit for the financial year attributable to: Owners of the parent Non-controlling interests 5.6(a) Sch 6.17(3) 9.21 * The Balance Sheet and Profit and Loss Account are still required to be presented in accordance with the Companies Act formats. The titles of these primary statements could be changed to the FRS 102 titles, ie Statement of Financial Position and Income Statement, or continue to use the Companies Act format titles, ie Balance Sheet and Profit and Loss Account. * A company may present a separate Income Statement and Statement of Comprehensive Income (see page 2), or combine the two into a single Statement of Comprehensive Income (see appendix for illustration of one-statement approach). [Refer to conversion report page 13&14] 2014 Grant Thornton UK LLP. All rights reserved 1
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2015 2014 Profit for the financial year Currency translation differences on foreign currency net investments Share of other comprehensive income of associates Total comprehensive income for the financial year Total comprehensive income for the financial year attributable to: Owners of the parent Non-controlling interests 5.5A 30.25(b) 5.6(b) * The Statement of Comprehensive Income is essentially equivalent to the Statement of Total Recognised Gains and Losses ('STRGL') under current UK GAAP. However, the STRGL only presents the parent company's share of profits and other gains and losses, whereas a the Statement of Comprehensive Income includes the non-controlling interests share of profit and other gains and losses. * Disclosure of the allocation of profits and total comprehensive income between owners of the parent and any non-controlling interests is required. [Refer to conversion report page 13&14] 2014 Grant Thornton UK LLP. All rights reserved 2
CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2015 Note 2015 2014 Fixed assets Intangible assets 10 Tangible assets 11 Investments 12 Current assets Stocks 13 Debtors 14 Cash at bank and in hand Creditors: amounts falling due within one year 15 Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year 16 Provisions for liabilities 17 Net assets Capital and reserves Called up share capital 19 Share premium account 20 Foreign exchange translation reserve 20 Profit and loss account 20 Non-controlling interests The financial statements were approved by the Board of Directors on 2016. Signed on behalf of the board of directors: Chairman Company registration no: XXXXXX * FRS 102 has adopted a variety of terminology from IFRS (such as property, plant & equipment for tangible assets, inventory for stocks, and current liabilities for creditors: amounts falling due within one year). UK companies will still need to comply with company law, which stipulates the format of, and headings to be used in, the Balance Sheet and Profit and Loss Account. [Refer to conversion report page 13] 2014 Grant Thornton UK LLP. All rights reserved 3
COMPANY STATEMENT OF FINANCIAL POSITION As at 31 December 2015 Note 2015 2014 Fixed assets Tangible assets 11 Investments 12 Current assets Stocks 13 Debtors 14 Cash at bank and in hand Creditors: amounts falling due within one year 15 Net current assets Total assets less current liabilities Provisions for liabilities 17 Net assets Capital and reserves Called up share capital 19 Share premium account 20 Profit and loss account 20 The financial statements were approved by the Board of Directors on 2016. Signed on behalf of the board of directors: Chairman Company registration no: XXXXXX 2014 Grant Thornton UK LLP. All rights reserved 4
CONSOLIDATED STATEMENT OF CASH FLOWS For year ended 31 December 2015 2015 2014 Cash flows from operating activities 7.4 Profit for the financial year Adjustments for: 7.8 Amortisation of intangible assets Depreciation of tangible assets Interest paid Interest received Taxation Decrease/(increase) in trade and other debtors Decrease/(increase) in stocks Increase/(decrease) in trade creditors Cash from operations Income taxes paid Net cash generated from operating activities Cash flows from investing activities 7.5 Proceeds from sale of tangible assets Purchases of tangible assets Purchases of intangible assets Interest received 7.15 Net cash from investing activities Cash flows from financing activities 7.6 Issue of ordinary share capital Repayment of bank loans Repayment of finance lease obligations Interest paid 7.15 Dividends paid 7.16 Net cash used in financing activities Net increase in cash and cash equivalents Foreign exchange translation adjustment 7.13 Cash and cash equivalents at the beginning of year Cash and cash equivalents at end of year * Cash flows are presented under just three headings (operating, investing and financing), rather than the potential nine available under current UK GAAP. * Components of cash and cash equivalents to be disclosed and reconciled to the Statement of Financial Position. However, this is not required if the amount of cash and cash equivalents is identical to the amount similarly described in the Statement of Financial Position. [Refer to conversion report page 16&17] 2014 Grant Thornton UK LLP. All rights reserved 5
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY At 1 January 2014 Profit for the year Other comprehensive income Foreign exchange translation difference Share of other comprehensive income of associates Calledup share capital Share premium account Foreign exchange translation reserve Profit and loss account Amount attributable to owners of the parent Noncontrolling interests Total '000 '000 '000 '000 '000 '000 '000 - - - - - - - - - - - - Total - - comprehensive income for the year Issue of shares - - - Dividends paid - - - - At 31 December 2014 Profit for the year Other comprehensive income Foreign exchange translation difference Share of other comprehensive income of associates - - - 6.3(c)(i) - - 6.3(c)(ii) - - - 6.3A - - - - Total comprehensive - - 6.3(a) income for the year Issue of shares - - - 6.3(c)(iii) Dividends paid - - - - At 31 December 2015 2014 Grant Thornton UK LLP. All rights reserved 6
COMPANY STATEMENT OF CHANGES IN EQUITY For year ended 31 December 2015 Called-up share capital Share premium account Profit and loss account Total '000 '000 '000 '000 At 1 January 2014 Profit and total - - comprehensive income for the year Issue of shares - Dividends paid - - - At 31 December 2014 Profit and total - - comprehensive income for the year Issue of shares - Dividends paid - - - At 31 December 2015 * A Statement of Changes in Equity is required, although a company is permitted to present a Statement of Income and Retained Earnings in place of a Statement of Comprehensive Income and a Statement of Changes in Equity if the only changes to its equity during the periods presented arise from profit or loss, payment of dividends and prior period adjustments (see appendix for illustration of the Statement of Income and Retained Earnings). * The Companies Act 2006 Section 408 exemption will still be available. This means that the Statement of Comprehensive Income (whether presented as one statement or two) is not required for the parent's individual accounts. However the exemption does not extend to the parent company's Statement of Changes in Equity, which will be required. [Refer to conversion report page 15] 2014 Grant Thornton UK LLP. All rights reserved 7
1 Company information [The legal form of the entity, its country of incorporation and the address of its registered office (or principal place of business, if different from the registered office) is required to be disclosed in the notes.] [Disclosure of an entity's principal activities and nature of operations is required (despite no longer being a disclosure requirement in the directors' report following changes to company law). If, however, an entity does disclose this information elsewhere in their annual report, then it need not be repeated here. ] 3.24(a) 3.24(b) 2 Basis of preparation These financial statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland' ('FRS 102'), and with the Companies Act 2006. The financial statements have been prepared on the historical cost basis except for the modification to a fair value basis for certain financial instruments as specified in the accounting policies below. 3.3 8.2(a) This is the first year in which the financial statements have been prepared under FRS 102. Refer to note 26 for an explanation of the transition. The financial statements are presented in Sterling ( ). The group financial statements consolidate the financial statements of FRS 102 Limited and all its subsidiary undertakings drawn up to 31 December each year. The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own Profit and Loss Account in these financial statements. The parent company's profit for the year was (2014: ). The individual accounts of FRS 102 Limited have also adopted the following disclosure exemptions: - the requirement to present a statement of cash flows and related notes - financial instrument disclosures, including: categories of financial instruments, items of income, expenses, gains or losses relating to financial instruments, and exposure to and management of financial risks. Going concern After reviewing the group's forecasts and projections, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. The group therefore continues to adopt the going concern basis in preparing its consolidated financial statements. 3.23(d) 30.26 3.23(b) 9.23(a) s408 1.11(c)(i) 3.8&9 FRC Guidance 2014 Grant Thornton UK LLP. All rights reserved 8
3 Significant judgements and estimates Preparation of the financial statements requires management to make significant judgements and estimates. The items in the financial statements where these judgments and estimates have been made include: [An entity shall disclose the judgements, apart from those involving estimations, that management has made in the process of applying the entity s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.] [An entity shall disclose in the notes information about the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of: (a) their nature; and (b) their carrying amount as at the end of the reporting period.] 8.6 8.7 4 Principal accounting policies 4.1 Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree plus costs directly attributable to the business combination. Any excess of the cost of the business combination over the acquirer's interest in the net fair value of the identifiable assets and liabilities is recognised as goodwill. If the net fair value of the identifiable assets and liabilities exceeds the cost of the business combination the excess is recognised separately on the face of the consolidated statement of financial position immediately below goodwill. 4.2 Investment in subsidiaries The consolidated financial statements incorporate the financial statements of the company and entities (including special purpose entities) controlled by the group (its subsidiaries). Control is achieved where the group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. 9.27(b) The results of subsidiaries acquired or disposed of during the year are included in total comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate using accounting policies consistent with those of the parent. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Investments in subsidiaries are accounted for at cost less impairment in the individual financial statements. 2014 Grant Thornton UK LLP. All rights reserved 9
4.3 Investments in associates Investments in associates are recognised initially in the consolidated statement of financial position at the transaction price and subsequently adjusted to reflect the group's share of total comprehensive income and equity of the associate, less any impairment. 14.12(a) 9.27(b) Any excess of the cost of acquisition over the group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition, although treated as goodwill, is presented as part of the investment in the associate. Amortisation is charged so as to allocate the cost of goodwill over its estimated useful life, using the straight-line method. Losses in excess of the carrying amount of an investment in an associate are recorded as a provision only when the company has incurred legal or constructive obligations or has made payments on behalf of the associate. Investments in associates are accounted for at cost less impairment in the individual financial statements. 4.4 Intangible assets Intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses. Software development costs are recognised as an intangible asset when all of the following criteria are demonstrated: - The technical feasibility of completing the software so that it will be available for use or sale. - The intention to complete the software and use or sell it. - The ability to use the software or to sell it. - How the software will generate probable future economic benefits. - The availability of adequate technical, financial and other resources to complete the development and to use or sell the software. - The ability to measure reliably the expenditure attributable to the software during its development. Amortisation is charged so as to allocate the cost of intangibles less their residual values over their estimated useful lives, using the straight-line method. The intangible assets are amortised over the following useful economic lives: - Software development costs 5 years - Goodwill 10 years 18.27(a) &(b) If there is an indication that there has been a significant change in amortisation rate or residual value of an asset, the amortisation of that asset is revised prospectively to reflect the new expectations. If the net fair value of the identifiable assets and liabilities acquired exceeds the cost of a business combination, the excess up to the fair value of non-monetary assets acquired is recognised in profit or loss in the periods in which the non-monetary assets are recovered. Any excess exceeding the fair value of non-monetary assets acquired is recognised in profit or loss in the periods expected to be benefitted. 2014 Grant Thornton UK LLP. All rights reserved 10
4.5 Tangible assets Tangible fixed assets are measured at cost less accumulated depreciation and any accumulated impairment losses. 17.31(a)- (c) Depreciation is calculated to write down the cost less estimated residual value of all tangible fixed assets, other than freehold land, over their expected useful lives, using the straight-line method. The rates applicable are: - Freehold buildings 45 years - Plant and machinery 8 years - Computer hardware 5 years - Furniture and equipment 10 years - Motor vehicles 4 years 4.6 Impairment of assets At each reporting date fixed assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If there is an indication of possible impairment, the recoverable amount of any affected asset is estimated and compared with its carrying amount. If estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognised immediately in profit or loss. If an impairment loss subsequently reverses, the carry amount of the asset is increased to the revised estimate of its recoverable amount, but not in excess of the amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. 4.7 Investments Investments comprise investments in unquoted equity instruments which are measured at fair value. Changes in fair value are recognised in profit or loss. Fair value is estimated by using a valuation technique.* 4.8 Stocks Stock are stated at the lower of cost, using the first in first out method, and selling price less costs to complete and sell. 4.9 Debtors Short term debtors are measured at transaction price, less any impairment. Loans receivable are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment. 11.40&43 13.22(a) 11.40 * Investments in shares (other than shares of a subsidiary, associate or joint venture) are required to be carried at fair value through profit or loss, provided that they are publicly traded, or fair value can be measured reliably, for example by using a valuation technique. Where fair value cannot be measured reliably, then the investment is carried at cost less impairment. However, given that a valuation model of some sort can very often be applied, FRS 102 would appear to allow little scope for this method. [Refer to conversion report page 29] 2014 Grant Thornton UK LLP. All rights reserved 11
4.10 Creditors Short term trade creditors are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method. 11.40 4.11 Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the leased asset to the group. All other leases are classified as operating leases. Assets held under finance leases are recognised initially at the fair value of the leased asset (or, if lower, the present value of minimum lease payments) at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation using the effective interest method so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are deducted in measuring profit or loss. Assets held under finance leases are included in tangible fixed assets and depreciated and assessed for impairment losses in the same way as owned assets. Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the lease term, unless the rental payments are structured to increase in line with expected general inflation, in which case the group recognises annual rent expense equal to amounts owed to the lessor.* 20.15(b) 20.15A The aggregate benefit of lease incentives are recognised as a reduction to the expense recognised over the lease term on a straight line basis.* * Under previous UK GAAP, lease incentives were spread over the period until a market rental applies. This is usually the date of the first rent review, and thus shorter than the lease term. There is a transitional relief available for lease incentives, such that where a lease commenced before date of transition, the remaining benefit of the lease incentive may continue to be recognised in accordance with previous UK GAAP. * Where a lease includes pre-set increases in the rent payable to reflect expected inflation, then the annual expense is recognised in line with this stepped schedule (rather than spreading the total cost over the period of the lease, as under previous UK GAAP). [Refer to conversion report page 43] 2014 Grant Thornton UK LLP. All rights reserved 12
4.12 Derivative financial instruments Derivative financial instruments are recognised at fair value using a valuation technique with any gains or losses being reported in profit or loss. Outstanding derivatives at reporting date are included under the appropriate format heading depending on the nature of the derivative.* 11.40&43 4.13 Provisions for liabilities Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that the group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where the effect of the time value of money is material, the amount expected to be required to settle the obligation is recognised at present value using a pre-tax discount rate. The unwinding of the discount is recognised as a finance cost in profit or loss in the period it arises. The group recognises a provision for annual leave accrued by employees as a result of services rendered in the current period, and which employees are entitled to carry forward and use within the next 12 months. The provision is measured at the salary cost payable for the period of absence.* 28.6 * Non-basic financial instruments include all derivatives, such as: forwards, swaps, caps or collars. All are recognised on the balance sheet and measured at fair value through profit or loss. This means that at each period end the instrument is re-valued to fair value, with the movement posted to the Income Statement (unless hedge accounting is applied). [Refer to conversion report page 20] * Under FRS 102 an accrual for holiday pay is specifically required. The impact of this is likely to be most significant when the company's holiday year is not the same as its financial year, and/or employees are entitled to carry forward holiday balances to future years. [Refer to conversion report page 38] 2014 Grant Thornton UK LLP. All rights reserved 13
4.14 Taxation Current tax is recognised for the amount of income tax payable in respect of the taxable profit for the current or past reporting periods using the tax rates and laws that that have been enacted or substantively enacted by the reporting date. Deferred tax is recognised in respect of all timing differences at the reporting date, except as otherwise indicated. Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. If and when all conditions for retaining tax allowances for the cost of a fixed asset have been met, the deferred tax is reversed. Deferred tax is recognised when income or expenses from a subsidiary or associate have been recognised, and will be assessed for tax in a future period, except where: - the group is able to control the reversal of the timing difference; and - it is probable that the timing difference will not reverse in the foreseeable future. A deferred tax liability or asset is recognised for the additional tax that will be paid or avoided in respect of assets and liabilities that are recognised in a business combination. The amount attributed to goodwill is adjusted by the amount of deferred tax recognised. Deferred tax is calculated using the tax rates and laws that that have been enacted or substantively enacted by the reporting date that are expected to apply to the reversal of the timing difference. With the exception of changes arising on the initial recognition of a business combination, the tax expense (income) is presented either in profit or loss, other comprehensive income or equity depending on the transaction that resulted in the tax expense (income). Deferred tax liabilities are presented within provisions for liabilities and deferred tax assets within debtors. Deferred tax assets and deferred tax liabilities are offset only if: - the group has a legally enforceable right to set off current tax assets against current tax liabilities, and - the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously. 4.15 Turnover [This policy should be made explicit and specific to the group's / company's circumstances in line with its business. The revenue recognition policy should be amplified where the nature of transactions requires such amplification. The key principle is that the reader should understand how revenue is earned, measured and recognised in the group's/company's particular circumstances.] 23.30(a) Turnover is measured at the fair value of the consideration received or receivable, net of discounts and value added taxes. Turnover includes revenue earned from the sale of goods and form the rendering of services. 2014 Grant Thornton UK LLP. All rights reserved 14
4.15 Turnover (continued) Sale of goods Turnover from the sale of goods is recognised when the significant risks and rewards of ownership of the goods has transferred to the buyer. This is usually at the point that the customer has signed for the delivery of the goods. Rendering of services Turnover from the rendering of services is recognised by reference to the stage of completion of the contract. The stage of completion of a contract is measured by comparing the costs incurred for work performed to date to the total estimated contract costs. Turnover is only recognised to the extent of recoverable expenses when the outcome of a contract cannot be estimated reliably. 23.30(a) 23.30(a) 4.16 Employee benefits Short-term employee benefits and contributions to defined contribution plans are recognised as an expense in the period in which they are incurred. 4.17 Foreign currency translation Functional currency and presentation currency The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position are presented in Sterling ( ). 30.26 Sch 1.70 Transactions and balances In preparing the financial statements of the individual entities, transactions in currencies other than the functional currency of the individual entities (foreign currencies) are recognised at the spot rate at the dates of the transactions, or at an average rate where this rate approximates the actual rate at the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise. However, in the consolidated financial statements exchange differences arising on monetary items that form part of the net investment in a foreign operation are recognised in other comprehensive income and are not reclassified to profit or loss. Translation of group companies For the purpose of presenting consolidated financial statements, the assets and liabilities of the group's foreign operations are translated from their functional currency to Sterling ( ) using the closing exchange rate. Income and expenses are translated using the average rate for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising on the translation of group companies are recognised in other comprehensive income and are not reclassified to profit or loss. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. 2014 Grant Thornton UK LLP. All rights reserved 15
5 Turnover. Turnover, analysed geographically between markets, was as follows: 2015 2014 Sch 1.68(2) Europe Rest of the World Turnover, analysed by category, was as follows: 2015 2014 23.30(b) Sch 1.68(1) Sales of goods Rendering of services 6 Profit on ordinary activities before taxation The profit on ordinary activities before taxation is stated after: 2015 2014 SI 2008/489 Auditor's remuneration: Tech 14/13 Fees payable to the company's auditor for the audit of the company's annual accounts Fees payable to the company's auditor and its associates for other services: Audit of the accounts of subsidiaries Tax compliance services Foreign exchange losses 30.25(a) Other operating lease rentals 20.16(b) Changes in fair value of investments 11.48(a) Sch 1. 55(2)(b)(i) Changes in fair value of derivatives 11.48(a) Sch 1.55 Research and development expense 18.29 2014 Grant Thornton UK LLP. All rights reserved 16
7 Directors and employees Staff costs during the year were as follows: 2015 2014 s411 Wages and salaries Social security costs Other pension costs 28.40 The company operates a stakeholder defined contribution pension scheme for the benefit of the employees and directors. The assets of the scheme are administered by an independent pensions provider. Pension payments recognised as an expense during the year amount to (2014: ). 28.40 The average number of employees of the group during the year was: 2015 2014 Number Number Sales and trading Processing and administration Remuneration in respect of directors was as follows: 2015 2014 Sch 5 000 000 Emoluments Pension contributions to money purchase pension schemes During the year x directors (2014: x) participated in money purchase pension schemes. Sch 5 The amounts set out above include remuneration in respect of the highest paid director as follows: 2015 2014 Emoluments Pension contributions to money purchase pension schemes 2014 Grant Thornton UK LLP. All rights reserved 17
8 Tax on profit on ordinary activities The tax (credit)/charge is based on the profit for the year and represents: 2015 2014 UK Corporation Tax Adjustments in respect of previous periods Overseas taxation Total current tax Deferred taxation: origination and reversal of timing differences Deferred taxation: changes in tax rates Tax on results on ordinary activities The tax assessed for the year is lower than the standard rate of corporation tax in the United Kingdom at xx% (2014: xx%). The differences are explained as follows: 29.26 Sch 1.67 29.27(b) Profit on ordinary activities before tax Profit on ordinary activities multiplied by standard rate of corporation tax in the United Kingdom of xx% (2014: xx%) Expenses not deductible for tax purposes Losses carried back Difference in tax rates Prior year adjustments Overseas tax differences Tax on results on ordinary activities* * Note: Reconcile to total tax, ie including deferred tax The aggregate current and deferred tax relating to items that are recognised as items of other comprehensive income is (2014: ). During the year the UK corporation tax rate was decreased. Following Budget 20XX announcements, there will be a further reduction in the main rate of corporation tax to XX% from 1 April 20XX. 29.27(a) 29.27(d) 9 Dividends 2015 2014 Paid during the year Sch 1.43 Declared post year end 2014 Grant Thornton UK LLP. All rights reserved 18
10 Intangible fixed assets The group Software development costs Goodwill Total 19.26 Sch 1.51 18.27(c)&(e) '000 Cost At 1 January 2015 Additions Exchange adjustments At 31 December 2015 Depreciation and impairment At 1 January 2015 Charge for the year Impairment loss - 27.32(a) Exchange adjustments At 31 December 2015 Net book amount at 31 December 2015 Net book amount at 31 December 2014 Amortisation of intangible fixed assets is included in administrative expenses. The group's telephone ordering system is included within software development costs and has a carrying value of, and a remaining amortisation period of 2 years. An impairment loss on goodwill was recognised in administrative expenses during the period due to worse than expected economic performance of operations in France. 18.27(d) 18.28(a) 27.33A& 27.32(a) 2014 Grant Thornton UK LLP. All rights reserved 19
11 Tangible fixed assets The group Computer hardware Furniture and equipment Motor vehicles Freehold property Plant and machinery Total Cost At 1 January 2015 Additions Disposals Exchange adjustments At 31 December 2015 Depreciation At 1 January 2015 Provided in the year Disposals Exchange adjustments At 31 December 2015 Net book amount at 31 December 2015 Net book amount at 31 December 2014 Included within freehold property is land of (2014: ), which is not depreciated. 17.31 Sch 1.51 Tangible fixed assets with a carrying value of (2014: ) are pledged as security for the group's bank loans. Plant and machinery with a carrying value of (2014: ) and motor vehicles with a carrying value of (2014: ) are held under finance leases. 17.32(a) Sch 1.63(1) 20.13(a) 2014 Grant Thornton UK LLP. All rights reserved 20
11 Tangible fixed assets (continued) The company Computer Furniture and Motor Freehold hardware equipment vehicles property Total '000 Cost At 1 January 2015 Additions Disposals At 31 December 2015 17.31 Sch 1.51 Depreciation At 1 January 2015 Provided in the year Disposals At 31 December 2015 Net book amount at 31 December 2015 Net book amount at 31 December 2014 Included within freehold property is land of (2014: ), which is not depreciated. Tangible fixed assets with a carrying value of (2014: ) are pledged as security for the group's bank loans. 17.32(a) Sch 1.63(1) 2014 Grant Thornton UK LLP. All rights reserved 21
12 Investments Total fixed asset investments comprise: The group The company 2015 2014 2015 2014 Interests in subsidiaries - - Interests in associates Other fixed asset investments Interests in subsidiaries At 2015 the group and the company had interests in the following subsidiaries: Subsidiaries Type of shares held Proportion held (%) Country of incorporation Nature of business Sch 4.1 & 4.17 United Brighton Limited Ordinary 80% Kingdom Retail Normandy Ltd Ordinary 100% France Distribution The company Cost At 1 January 2015 Additions in the year At 31 December 2015 Accumulated impairment At 1 January 2015 Impairment loss At 31 December 2015 Net book amount at 31 December 2015 Net book amount at 31 December 2014 Investment in subsidiaries '000 Sch 1.51 2014 Grant Thornton UK LLP. All rights reserved 22
12 Investments (continued) Interests in associates At 2015 the group and the company had interests in the following associates: Associates Type of shares held Proportion held (%) Country of incorporation Sch 4.19 Munich AG Ordinary 25% Germany United Three Lions Limited Ordinary 30% Kingdom The group Share of net assets Loans Total '000 At 1 January 2015 Share of profit for the year after taxation - 14.14 Share of other comprehensive income - At 31 December 2015 14.12(b) The company Investment in equity shares Loans Total '000 At 1 January 2015 and 31 December 2015 14.12(b) Munich AG is quoted on the Frankfurt Stock exchange and has a fair value of (2014: ) based on the published share price as at the reporting date. 14.12(c) Other fixed asset investments The group and company Valuation At 1 January 2015 Change in value during the year At 31 December 2015 Unquoted investments '000 Sch 1.51 2014 Grant Thornton UK LLP. All rights reserved 23
13 Stocks The group The company 13.22(b) 2015 2014 2015 2014 000 000 Raw materials Finished goods Stock recognised in cost of sales during the year as an expense was (2014: ). An impairment loss of (2014: ) was recognised in cost of sales against stock during the year due to slow-moving and obsolete stock. The total carrying amount of stock is pledged as security for the group's bank loans. 13.22(c) 13.22(d) 27.33(a) 13.22(e) 14 Debtors The group The company 2015 2014 2015 2014 Trade debtors Amounts owed by subsidiary undertaking - - Amounts owed by associated undertakings Corporation tax Derivatives Prepayments and accrued income An impairment loss of (2014: ) was recognised against trade debtors. 11.48(c) 15 Creditors: amounts falling due within one year The group The company 2015 2014 2015 2014 Bank overdrafts Bank loans Finance lease obligations Trade creditors Amounts owed to subsidiary undertakings - - Amounts owed to associated undertakings Taxation and social security Corporation tax Other creditors Accruals 2014 Grant Thornton UK LLP. All rights reserved 24
16 Creditors: amounts falling due after more than one year The group The company 2015 2014 2015 2014 Finance lease obligations - - Bank loans - - - - Bank loans are repayable as follows: The group The company 2015 2014 2015 2014 Within one year Between one to two years - - Between two to five years - - More than five years - - Sch 1.61 The bank loans and overdrafts are secured against assets of the group and company. The group has a loan with 1 st Paris Bank of (2014: ). The loan is repayable over the period until. The interest rate on the loan is EURIBOR + XX%. 11.42 Sch 1.61 17 Provisions for liabilities The group Deferred Leave pay Total taxation (note 18) '000 21.14(a) 29.23 Sch 1.60 At 1 January 2015 Additions - Utilised - Reversals - Origination and reversal of timing differences - 29.26(c) Changes in tax rates - 29.26(d) At 31 December 2015 2014 Grant Thornton UK LLP. All rights reserved 25
17 Provisions for liabilities (continued) The company Deferred Leave pay Total taxation (note 18) '000 21.14(a) At 1 January 2015 Additions - Utilised - Reversals - Origination and reversal of timing differences - 29.26(c) Changes in tax rates - 29.26(d) At 31 December 2015 The leave pay provision represents holiday balances accrued as a result of services rendered in the current period and which employees are entitled to carry forward. The provision is measured as the salary cost payable for the period of absence. 21.14(b) 18 Deferred taxation Deferred taxation provided for at xx% (2014: xx%) in the financial statements is set out below: The group The company 2015 2014 2015 2014 Accelerated capital allowance Derivative contracts The amount of the net reversal of deferred tax expected to occur next year is (2014: ), relating to the reversal of existing timing differences on tangible fixed assets and derivative contracts and the origination of new timing differences on intangible fixed assets. 29.27(e) 29.27(c) 2014 Grant Thornton UK LLP. All rights reserved 26
19 Called up share capital Authorised, allotted and fully paid: 2015 2014 founders' shares of x each ordinary shares of x each Founder shares rank pari passu to ordinary shares except for voting rights. Every founder share carried one voting right compared to one vote per one hundred ordinary shares. 4.12(a) Sch 1.47(1) 4.12(a)(v) Ordinary shares 2015 Number At 1 January 2015 4.12(a)(iv) Share issue At 31 December 2015 Consideration received for the allotment of ordinary shares during the year was. Sch 1.48(b) 20 Reserves Called-up share capital represents the nominal value of shares that have been issued. 4.12(b) Share premium account includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium. Foreign exchange translation reserve comprises translation differences arising from the translation of financial statements of the Group s foreign entities into Sterling ( ). Profit and loss account includes all current and prior period retained profits and losses. 21 Capital commitments The group had capital commitments for plant and machinery of (2014: ). 17.32(b) Sch 1.63(3) 2014 Grant Thornton UK LLP. All rights reserved 27
22 Leasing commitments The group's future minimum operating lease payments are as follows: 2015 2014 Within one year Between one and five years 20.16(a) The group's future minimum finance lease payments are as follows: 2015 2014 Within one year Between one and five years 20.13(b) The company's future minimum finance lease payments are as follows: 2015 2014 Within one year Between one and five years Certain plant and machinery and motor vehicles are held under finance lease arrangements. Finance lease liabilities are secured by the related assets held under finance leases (see note 11). The lease agreements generally include fixed lease payments and a purchase option at the end of the lease term. 20.13(b) 20.13(c) 2014 Grant Thornton UK LLP. All rights reserved 28
23 Transactions with related parties 2015 2014 33.9 Sch 1.72 Sales to subsidiary - Brighton Limited* Sales to associates Purchases from associates Interest received on loans to associates Loans due from associated undertakings Trade debtor amounts due from associates Trade creditors amounts due to associates Key management personnel compensation 33.7 Dividends paid to directors * Note: The exemption from disclosure of transactions with subsidiaries is only available where the subsidiary which is party to the transaction is wholly-owned. Loans to associates are unsecured and at a fixed interest rate of XX%. A provision of (2014: ) has been recognised against these loans. The company has provided a guarantee of (2014: ) in respect of the bank loan of a subsidiary. The company does not have a parent undertaking. The ultimate controlling party of the group is John Smith. 33.9(b)(i) &(c) 21.17A 33.9(b)(ii) 33.5 Sch 4.8&9 2014 Grant Thornton UK LLP. All rights reserved 29
24 Financial risk management The group has exposures to three main areas of risk - foreign exchange currency exposure, liquidity risk and customer credit exposure. To a lesser extent the group is exposed to interest rate risk. 11.48A(f) Foreign exchange transactional currency exposure The group is exposed to currency exchange rate risk due to a significant proportion of its receivables and operating expenses being denominated in non-sterling currencies. The net exposure of each currency is monitored and managed by the use of forward foreign exchange contracts, currency loans or overdrafts. The forward foreign exchange contracts all mature within 12 months. The group's subsidiary, Normandy Ltd, is exposed to currency exchange risk arising from non-euro currencies, but as this is not significant no active management of this risk is undertaken. Liquidity risk The objective of the group in managing liquidity risk is to ensure that it can meet its financial obligations as and when they fall due. The group expects to meet its financial obligations through operating cash flows. In the event that the operating cash flows would not cover all the financial obligations the group has credit facilities available. Given the maturity of the bank loan in note 16, the group is in position to meet its commitments and obligations as they come due. Customer credit exposure The group may offer credit terms to its customers which allow payment of the debt after delivery of the goods or services. The group is at risk to the extent that a customer may be unable to pay the debt on the specified due date. This risk is mitigated by the strong on-going customer relationships and by credit insurance. Interest rate risk The group borrows from its bankers using either overdrafts or term loans whose tenure depends on the nature of the asset and management's view of the future direction of interest rate. 25 Financial assets and liabilities Group 2015 2014 Financial assets measured at fair value through profit or loss 11.41(a) Financial assets measured at amortised cost 11.41(b) Financial liabilities measured at amortised cost 11.41(e) The fair value of unquoted investments is determined using an earnings multiple valuation model. Key assumptions used in the model includes the price earnings multiple used. This is determined by reference to the price earnings multiple of similar quoted companies. The foreign currency forward contracts are not traded in active markets. These have been fair valued using observable forward exchange rates and interest rates corresponding to the maturity of the contract. 11.43 Sch 1.55(2)(a) 11.43 Sch 1.55(2)(a) 2014 Grant Thornton UK LLP. All rights reserved 30
26 Transition to FRS 102 The company has adopted FRS 102 for the year ended 2015 and has restated the comparative prior year amounts. 35.12 Explanations Corrections of prior period errors 1. Stocks are now measured using the first in first out method, rather than using a last in first out method. 35.14 2. Investments in associates are now valued at original cost based on the original exchange rates. Previously they were revalued at closing exchange rates with the gain or loss in the value of the investment being recognised in profit or loss and added to the carrying value of the investment. Changes for FRS 102 adoption 3. Foreign exchange forward contracts are now recognised at fair value at the end of the year with changes in fair value recognised in profit or loss. Previously foreign exchange contracts were not recognised in the statement of financial position. 35.13(a) 4. The group now uses average exchange rates to translate income and expenses of the group's foreign operations. Previously, the group used the closing exchange rate. Transition to FRS 102 - reconciliations Restated consolidated statement of financial position Explanation 31 December 1 January 2014 2014 000 '000 35.13(b) Original shareholders' funds Stock valuation adjustment 1 Deferred tax on stock adjustment Restatement of investment in associates 2 Financial instruments at fair value 3 Deferred tax on instruments at fair value Restated shareholders' funds Restated company statement of financial position Explanation 31 December 1 January 2014 2014 000 '000 35.13(b) Original shareholders' funds Stock valuation adjustment 1 Deferred tax on stock adjustment Restatement of investment in associates 2 Financial instruments at fair value 3 Deferred tax on instruments at fair value Restated shareholders' funds 2014 Grant Thornton UK LLP. All rights reserved 31
26 Transition to FRS 102 (continued) Restated profit or loss for the year ended 31 December 2014 Explanations '000 35.13(c) Original profit on ordinary activities before tax Add stock provision 1 Remove the revaluation of investment in associates and 2 subsidiary Add financial instruments at fair value 3 Amendment of principle of consolidation to average exchange rates 4 Original tax on ordinary activities Deferred tax on stock adjustment 1 Deferred tax on financial instruments at fair value 3 Amendment of principle of consolidation to average 4 exchange rates - associate tax Restated tax on profit on ordinary activities Restated profit for the financial year 2014 Grant Thornton UK LLP. All rights reserved 32
APPENDIX FRS 102 LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (ONE STATEMENT) Turnover Cost of sales Gross profit Administrative expenses Other operating income Operating profit Share of operating profits of associates Note 2015 2014 Interest receivable and similar income Interest payable and similar charges Profit on ordinary activities before taxation Tax on profit on ordinary activities Profit for the financial year Other comprehensive income Currency translation differences on foreign currency net investments Actuarial gains/losses Share of other comprehensive income of associates Total comprehensive income for the financial year Profit for the financial year attributable to: Owners of the parent Non-controlling interests Total comprehensive income for the financial year attributable to: Owners of the parent Non-controlling interests 2014 Grant Thornton UK LLP. All rights reserved 33
APPENDIX FRS 102 LIMITED CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS Turnover Cost of sales Gross profit Administrative expenses Other operating income Operating profit Share of operating profits of associates Note 2015 2014 Interest receivable and similar income Interest payable and similar charges Profit on ordinary activities before taxation Tax on profit on ordinary activities Profit for the financial year Retained profits at 1 January Dividends paid Retained profits at 31 December * A company is permitted to present a Statement of Income and Retained Earnings in place of a Statement of Comprehensive Income and a Statement of Changes in Equity if the only changes to its equity during the periods presented arise from profit or loss, payment of dividends and prior period adjustments. [Refer to conversion report page 15] 2014 Grant Thornton UK LLP. All rights reserved 34
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