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Group accounting policies
Year ended 31 July 2007
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union, including interpretations issued by the International Accounting Standards Board ('IASB') and its committees and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The date of transition to IFRS was 1 August 2004.
A summary of the principal accounting policies applied by the Group in the preparation of the consolidated financial statements is set out below.
Basis of accounting
The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of available for sale investments and financial assets and liabilities held for trading.
Consolidation
The consolidated financial information includes the results of the parent Company and its subsidiary undertakings drawn up to 31 July 2007.
The trading results of businesses acquired, sold or discontinued during the year are included in profit on ordinary activities from the date of acquisition or up to the date of sale or discontinuance.
Intra-group transactions and balances and any unrealised gains and losses arising from intra-group transactions are eliminated on consolidation.
Foreign currencies
Items included in the financial statements of each of the Group's subsidiary undertakings are measured using the currency of the primary economic environment in which the subsidiary undertaking operates (the 'functional currency'). The consolidated financial statements are presented in sterling, which is the presentational currency of the Group and the functional currency of the parent company.
The trading results of overseas subsidiary undertakings are translated into sterling using average rates of exchange ruling during the relevant financial period.
The balance sheets of overseas subsidiary undertakings are translated into sterling at the rates of exchange ruling at the period end. Exchange differences arising between the translation into sterling of the net assets of these subsidiary undertakings at rates ruling at the beginning and end of the year are recognised in the currency translation reserve as are exchange differences on foreign currency borrowings to the extent that they are used to finance or provide a hedge against foreign currency net assets.
Changes in the fair value and the final settlement value of derivative financial instruments, entered into to hedge foreign currency net assets and that satisfy the hedging conditions of IAS 39, are recognised in the currency translation reserve (see the separate accounting policy on derivative financial instruments).
In the event that an overseas subsidiary undertaking is sold, the gain or loss on disposal recognised in the income statement is determined after taking into account the cumulative currency translation differences that are attributable to the subsidiary undertaking concerned. As permitted by IFRS 1, the Group elected to deem the cumulative currency translation differences of the Group to be £nil as at 1 August 2004. As a result the gain or loss on disposal of an overseas subsidiary undertaking will not include currency translation differences arising before 1 August 2004.
Foreign currency transactions entered into during the year are translated into sterling at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All currency translation differences are taken to the income statement with the exception of differences on foreign currency borrowings to the extent that they are used to finance or provide a hedge against foreign currency net assets as detailed above.
Revenue
Revenue is the amount receivable for the provision of goods and services falling within the Group's ordinary activities, excluding intra-group sales, estimated and actual sales returns, trade and early settlement discounts, value added tax and similar sales taxes.
Revenue from the provision of goods is recognised when the risks and rewards of ownership of goods have been transferred to the customer. The risks and rewards of ownership of goods are deemed to have been transferred when the goods are shipped to, or are picked up by, the customer.
Revenue from services, other than those that arise from construction service contracts (see below), are recognised when the service provided to the customer has been completed.
Revenue in respect of construction service contracts, where the Group is providing framing lumber installation services to residential property companies, is recognised using the percentage of completion method, with the percentage complete being determined by comparing the percentage of costs incurred to date with the estimated total costs of the contract. Losses on these contracts, if any, are recognised in the period when such losses become probable and can be reasonably estimated.
Revenue from the provision of goods and all services is only recognised when the amounts to be recognised are fixed or determinable and collectibility is reasonably assured.
Cost of sales
Cost of sales includes purchased goods, the cost of bringing inventory to its present location and condition, and labour and overheads attributable to assembly and construction services.
Vendor rebates
The Group enters into arrangements with certain vendors providing for inventory purchase rebates. These purchase rebates are accrued as earned and are recorded initially as a reduction in inventory with a subsequent reduction in cost of sales when the related product is sold.
Business combinations
The Group has applied the purchase method in its accounting for the acquisition of subsidiaries.
As permitted by IFRS 1, the Group elected not to apply IFRS 3 'Business Combinations' to acquisitions of subsidiaries that were recognised before 1 August 2004 and as a result the carrying amount of goodwill recognised as an asset under UK GAAP was brought forward unadjusted as the cost of goodwill recognised under IFRS as at 1 August 2004. IFRS 3 has been applied with effect from 1 August 2004 and goodwill amortisation ceased from that date.
The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest.
The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group's share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.