Marks and Spencer Group Plc: Accounting Policies - Essay Example

? Financial Accounting work Table of Contents Relevance of Accrual Accounting 3 Assumptions related to Going-Concern for preparing financial statements 3 Key accounting concepts used in preparation of financial statements 4 Marks and Spencer Group Plc: Accounting policies 5 Marks and Spencer Group Plc Financial statements: information on assets and liabilities 6 Marks and Spencer Group Plc: Impact of impairment 6 References 8 Relevance of Accrual Accounting The method of accrual accounting is one of the most commonly used methods of accounting adopted by multinational companies like Marks and Spencer. In cases where the businesses operations are widely spread, the cash payments and receipts are not made instantly during the time of business transactions. The accrual method of accounting recognizes the fact that the cash receipts and payments would be realized at a future date as the transaction has already happened. Thus the accrual method of accounting measures the position and performance of the company based on the transactions made in the course of business irrespective of the cash receipts and payments done for the business transaction. The accrual method of accounting combines the current and expected cash inflows and outflows to determine the consolidated financial position of the company (Sofat and Hiro, 2008, p.36). Marks and Spencer has used the accrual method to determine the expected value of the cash flows based on the historical sales returns so that the accrued figures could be allocated accurately in the financial statements. Assumptions related to Going-Concern for preparing financial statements The assumptions related to going concern for preparing financial statements are that the company would continue its business in near future unless the management decides to liquidate the company or decides to stop operations. When the financial statements are prepared by assuming the going concern of a business entity, the assets and liabilities are allocated with the assumption that if the company continues its operations, it would be able to acquire the same amount of assets or would be able to service the same amount of liabilities (Bhattacharyya, 2011, p.48). Ex. Marks and Spencer have prepared their financial statements with the assumption of going concern after considering the risk and uncertainties of the business. The assessment of the assets and liabilities for the foreseeable future has been done based on projections after consideration of risk. Key accounting concepts used in preparation of financial statements The accounting method is a tool based on which the financial statements are prepared and the information given in the financial statements are meant for the users. Thus the preparation of financial statements involves key accounting concepts which are standardized for the companies. The key accounting concepts are combined together to form the generally accepted accounting principles (GAAP). The accounting concepts that are used in the preparation of the financial statements are such as money measurement, entity, cost, going concern, objectivity, dual aspect, time period, realization, conservatism, consistency, matching, materiality. The consideration of an entity and its distinction from the owners is important for preparation of the financial statements. The business, sales and receipts in accounting are done in terms of money measurement. The business is considered to carry on its economic activities for a sustainable period of time unless the operations cease to exist on the basis of decision of owners. This concept forms the basis of a going concern that is used in accounting method (Crosson and Needles, 2010, p.52). The accounting measurements takes into consideration the cost incurred by the company for running the business. This includes the cost of capital, cost of goods sold, etc. The dual aspect in accounting states that the assets are equal to the liabilities of the company. The objectivity in accounting method involves independence from any form of bias and is based on calculations supported by adequate evidence. The accounting and preparation of financial statements is conducted for a certain time period and is usually on an annual basis (Sutherland and Canwell, 2004, p.28). The accounting concepts used in the preparation of financial statements should represent material facts and should be consistent with the guidelines of the generally accepted accounting principles. Marks and Spencer Group Plc: Accounting policies The accounting policies of Marks and Spencer Group Plc are based on adhering to the International Financial Reporting Standards and as per the interpretations of the International Financial Reporting Standards Committee. The company has fixed accounting policies for intangible assets like goodwill, brand, software intangibles, etc. According to the policies of Marks and Spencer, goodwill is calculated as the excess of the value of consolidated assets and liabilities over the fair at the date of acquisition. During the process of accounting, goodwill is considered to be an asset for the company and is subject to change based on the market events. The brand values are recorded initially in the financial statements at the level of cost incurred and then amortized over a period of time. The amortization is done on the basis of straight-line method or reduced on an annual basis as per the events of impairment (Warren, Reeve and Duchac, 2008, p.69). The value of software intangibles include the direct cost of production and salaries and wage related to the production of the software. The value is amortized either according to a straight-line method for a fixed life asset or on an annual basis in case of events of impairment. The cost of impairment in case of intangible assets is included in the income statement. For fixed assets, the accounting policies determine the value at a cost after subtracting the depreciation accumulated over the years and also after subtracting the losses due to impairment. The depreciation of property, plant and equipment is used to write off the cost over a period of time after subtracting the residual value of the property plant and equipment. The residual value of property plant and equipments are useful economic value of the assets and reviewed every year. The properties are not re-valued during the course of accounting (Raiborn, 2010, p.43). The provisions in the financial statements are calculated on current and non-current basis. The current provision includes the possible bad debts and leases that are due within a short term period of one year. The non-current provisions are irrecoverable assets and are closed due to non-performance over a long term period up to ten years. The provisions of the company are thus recorded as liabilities for the group. Marks and Spencer Group Plc Financial statements: information on assets and liabilities Marks and Spencer Group has a total value of intangible assets amounting to ?695m which is 11.16% of the total fixed assets of the company. The company has a total fixed asset of ?6299.8m. The value of intangible assets of Marks and Spencer has increased by 19.01% from 2012 to 2013. The total value of property, plant and equipment of Marks and Spencer has increased by 5.01% from 2012 to 2013 and current value of property, plant and equipment forms 80.80% of the total fixed assets of the company (Marks and Spencer, 2013, p.80). The company has short term provision of ?19.2m and long term provisions of ?16m. The short term provisions have increased more than double from 2012 to 2013. The long term provisions of the company have decreased by 33% from 2012 to 2013. The short term provisions form 0.86% of the short term liabilities of the company whereas the long term provisions form 0.57% of the long term liabilities of the company. Marks and Spencer Group Plc: Impact of impairment The impact of impairment on the financial statements of Marks and Spencer Group Plc has reduced the asset valuation of asset of the company from its base value of previous year due to the triggering effects of impairment (Stice, Stice and Swain, 2010, p.29). The value of impairment is recorded in the income statement of 2013. The impairment on goodwill of the company is estimated to be ?34.4m in 2013. The total value of impairment and asset write-off for the company is ?16.8m in 2013. However, the total asset value of the company has increased to ?7567.7m in 2013 due to the net positive effect of the asset performance of the company. The provision for impairment on receivables of the company has been estimated by the company to be ?5.4m on financial year ending of 2013. References Bhattacharyya, D. 2011. Management Accounting. Pearson Education India; New Delhi. Crosson, S. V. and Needles, B. E. 2010. Managerial Accounting. Cengage Learning; USA. Marks and Spencer. 2013. Annual report and ?nancial statements 2013. [Pdf]. Available at: http://annualreport.marksandspencer.com/docs/MS_AR2013_Report_Full.pdf. [Accessed on 29 July, 2013]. Raiborn, C. A. 2010. Core Concepts of Accounting. John Wiley & Sons; USA. Sofat and Hiro. 2008. Basic Accounting. PHI Learning Pvt. Ltd; New Delhi. Stice, E. K., Stice, J. D. and Swain, M. R. 2010. Accounting: Concepts and Applications. Cengage Learning; USA. Sutherland, J. and Canwell, D. 2004. Key Concepts in Accounting and Finance. New York Publisher; USA. Warren, C. S., Reeve, J. M. and Duchac, J. E. 2008. Accounting. Cengage Learning; USA. Read More