Basis of accounting
The financial statements have been prepared under the historical cost convention, modified by the revaluation of certain fixed assets, and in accordance with applicable accounting standards in the United Kingdom which have been applied on a consistent basis with previous years except as noted below.

Financial Reporting Standard (FRS) 17, “Retirement Benefits” will be adopted by the Group over the next two years. In accordance with the transitional arrangements, supplementary disclosures are set out in note 36.

The implementation by the Group of FRS 18 “Accounting Policies” and FRS 19 “Deferred Tax” has had no material effect on reported profits. The basis on which interest is reported has been changed in relation to the Financial Services and Finance Divisions to provide a more appropriate presentation of their profitability. Financial Services operating profit is stated after charging £3.0m of funding costs for the Argos store card. The Finance Division is stated after charging a further £4.4m of funding costs over and above the interest charge associated with its non-recourse borrowing. Comparative figures have been restated and the effect is to reduce both operating profit and net interest by £13.9m in the year ended 31 March 2001. There is no effect on profit before taxation.

Compliance with SSAP 19, “Accounting for Investment Properties”, requires a departure from the requirements of the Companies Act 1985 relating to the depreciation of investment properties, as explained in the “Tangible fixed assets” note below.

Basis of consolidation
The consolidated financial statements incorporate the assets, liabilities and results of the Company and its subsidiary undertakings. The results of subsidiary undertakings acquired or disposed of during the year are included in the consolidated results from, or up to, the effective date of acquisition or disposal.

Turnover
Turnover represents goods and services sold to customers outside the Group, less returns and sales taxes, and earned finance income.

Joint ventures and associated undertakings
The Group’s share of the profits of joint ventures and associated undertakings is included in the Group profit and loss account. Loans to joint ventures and associated undertakings and the Group’s share of net assets are included in the Group balance sheet.

Tangible fixed assets
Investment properties are revalued annually and included in the balance sheet at their open market value. In accordance with SSAP 19, no depreciation is provided in respect of investment properties except for leaseholds with less than 20 years to run. This represents a departure from the Companies Act 1985 requirement concerning the depreciation of fixed assets. Had SSAP19 not been followed the depreciation charge for the financial year would not have been material.

As permitted by FRS 15 the Group has adopted a policy of not revaluing trading properties and previously revalued trading properties are included at their valuation at 31 March 1996 less depreciation. Certain Reality specialist warehouses, all Argos properties and leasehold trading properties with 20 years or less to run had not previously been revalued and remain at depreciated historical cost.

Land is not depreciated. Freehold properties are depreciated over 50 years by equal annual instalments. Leasehold premises with unexpired lease terms of 50 years or less are depreciated by equal annual instalments over the remaining period of the lease. Plant, vehicles and equipment are depreciated by equal annual instalments over 2 to 10 years according to the estimated life of the asset. Equipment on hire or lease is depreciated over the period of the lease.

Goodwill
For acquisitions of subsidiary undertakings and investments in joint ventures and associated undertakings made on or after 1 April 1998, goodwill (being the excess of purchase consideration over the fair value of net assets) is capitalised as an intangible fixed asset. Fair values are attributed to the identifiable assets and liabilities that existed at the date of acquisition, reflecting their condition at that date. Adjustments are also made to bring the accounting policies of acquired businesses into alignment with those of the Group. Goodwill arising on acquisitions is amortised by equal annual instalments over its estimated useful economic life, up to a maximum of 20 years.

Goodwill on acquisitions prior to 1 April 1998 was written off to reserves in the year of acquisition. On the disposal of a business, any goodwill previously written off against reserves is included in the profit or loss on disposal.

Impairment of fixed assets and goodwill
Fixed assets and goodwill are subject to review for impairment in accordance with FRS 11 “Impairment of Fixed Assets and Goodwill”. Any impairment is recognised in the profit and loss account in the year in which it occurs.

Other intangible fixed assets
Intangible fixed assets other than goodwill comprise the data purchase and data capture costs of internally developed databases and are capitalised under SSAP 13 to recognise these costs over the period of their commercial use.Depreciation is provided by equal annual instalments on the cost of the assets over 3 to 5 years.

Stocks
Stocks and work in progress are valued at the lower of cost and net realisable value.

Instalments and hire purchase debtors
The gross margin from sales on extended credit terms is recognised at the time of sale.The finance charges relating to these sales are included in the profit and loss account as and when nstalments are received.The income in the Finance Division under instalment agreements is credited to the profit and loss account in proportion to the reducing balances outstanding.

Leases
The book value of finance lease receivables is included in debtors.Net income is credited to the profit and loss account to achieve a constant rate of return on the net funds invested.Gross rental income and expenditure in respect of operating leases are recognised on a straight line basis over the periods of the leases.

Assets acquired under finance leases are included in tangible fixed assets.The interest element of lease rentals is charged to the profit and loss account over the life of the lease in proportion to the outstanding lease commitment.All other leases are operating leases,and the annual rentals are charged to the profit and loss account as incurred.

Foreign currency
Assets and liabilities of overseas undertakings are translated into sterling at the rates of exchange ruling at the balance sheet date and the results are translated into sterling at average rates of exchange.Differences arising on the retranslation of opening net assets,profits and losses at average rates and borrowings designated as hedges are dealt with through reserves.Exchange profits and losses which arise from normal trading activities are included in the profit and loss account.

Derivative financial instruments
The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign currency exchange rates and interest rates.Derivative instruments utilised by the Group nclude interest rate swaps,currency swaps and forward currency contracts.Amounts payable or receivable in respect of interest rate swaps are recognised as adjustments to net interest expense over the period of the contract.Forward currency contracts are accounted for as hedges,with the instrument ’s impact on profit deferred until the underlying transaction is recognised n the profit and loss account.Financial instruments hedging the risk on foreign currency assets are re-valued at the balance sheet date and the resulting gain or loss is offset against that arising from the translation of the underlying assets into sterling.

Deferred taxation
Deferred taxation is provided in respect of all timing differences that have originated but not reversed at the balance sheet date and is determined using the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse.Deferred tax assets are recognised only to the extent that they are expected to be recoverable.Deferred taxation is discounted using the post tax yields to maturity that could be obtained at the balance sheet date on relevant government bonds with maturity dates similar to those of the deferred taxation assets and liabilities.

Incentive plans
The Group ’s share based incentive plans are accounted for in accordance with Urgent Issues Task Force (UITF)Abstract 17 “Employee Share Schemes ”.The cost of shares acquired by the Group ’s ESOP trusts or the fair market value of the shares at the date of the grant,less any consideration to be received from the employee,is charged to the profit and loss account over the period to which the employee ’s performance relates.Where awards are contingent upon future events (other than continued employment)an assessment of the likelihood of these conditions being achieved s made at the end of each reporting period and an appropriate accrual made.

The Company operates a Save As You Earn scheme that allows for the grant of share options at a discount to the market price at the date of the grant.The Company has made use of the exemption under UITF Abstract 17 not to recognise any compensation charge in respect of these options.

Pension costs
The Group operates pension plans throughout the world.The two major defined benefit schemes are in the United Kingdom with similar arrangements being in place for eligible employees in North America,South Africa and in The Netherlands.The assets covering these arrangements are held in independently administered funds.
The cost of providing defined pension benefits is charged to the profit and loss account over the anticipated period of employment in accordance with recommendations made by independent qualified actuaries.
The Group also operates defined contribution pension schemes,the major one being in the United Kingdom with its assets held in an independently administered fund.The cost of providing these benefits,recognised n the profit and loss account,comprises the amount of contributions payable to the schemes in respect of the year.