Accounting Policies

Property, Plant and Equipment

Property, plant and equipment excluding land are stated at cost less accumulated depreciation and any recognised impairment loss. Cost includes the original purchase price of the asset, any costs attributable to bringing the asset to its working condition for its intended use and major spares. An item of property, plant and equipment is recognised as an asset if it is probable that future economic benefits associated with the asset will flow to the entity, and the cost of the asset can be measured reliably.

Property, plant and equipment represents 51% of the total asset base of the Group in 2017 (2016: 57%). The estimates and assumptions made to determine the carrying value of property, plant and equipment and related depreciation are important to the Group's financial position and performance. Management assess the estimates and assumptions based on available external information and historical experience.

In determining the cost of property, plant and equipment, certain costs that relate to the intangible element of an asset are separately disclosed within Intangible assets, Note 3.1. Management exercise judgement to review each material asset addition and consider whether the intangible asset element can be used for other property, plant and equipment additions in the current or future years. Software written for the Group's first CFC in Hatfield is identified as a standalone intangible asset, because it has provided the foundation for software used in some areas of Dordon CFC, and is expected to provide part of the foundation of software used in future centres including Andover CFC.

For more information on the Group's policy on capitalisation of borrowings costs, see Note 4.1.

Depreciation on property, plant and equipment is charged to distribution costs and administrative expenses and is calculated based on the useful lives indicated below:

Freehold buildings and leasehold properties

30 years (25 years prior to review), or the lease term if shorter

Fixtures and fittings

5–10 years, or the lease term if shorter

Plant and machinery

3–20 years, or the lease term if shorter

Motor vehicles

2–7 years, or the lease term if shorter

Land is held at cost and not depreciated.

Assets in the course of construction are carried at cost less any recognised impairment loss. Cost includes professional fees and other directly attributable costs. Depreciation of these assets commences when the assets are ready for their intended use, on the same basis as other property assets.

Gains and losses on disposal are determined by comparing proceeds with the asset's carrying amount and are recognised within operating profit.

Estimation of Useful Life

Depreciation is provided at rates estimated to write off the cost of the relevant assets less their estimated residual values by equal annual amounts over their expected useful lives. Residual values and expected useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period.

The charge in respect of periodic depreciation is derived by estimating an asset's expected useful life and the expected residual value at the end of its life. Increasing an asset's expected life or its residual value would result in a reduced depreciation charge in the Consolidated Income Statement. The useful lives of the Group's assets are determined by management at the time the asset is acquired and reviewed at least annually for appropriateness.

Management also assess the useful lives based on historical experience with similar assets as well as anticipation of future events which may impact their useful life, such as changes in technology. A review of useful lives took place during the year and this resulted in a revision of the useful life of a number of assets. The revisions were accounted for prospectively as a change in accounting estimate and as a result, the depreciation charge of the Group for the current financial year has been reduced by £1.9 million.

Impairment of Non-Financial Assets (Including Intangible Assets)

Those which do not have indefinite useful lives are subject to an annual depreciation or amortisation charge. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units). The Group has identified 2 cash generating units reflecting the Retail and Solutions segments.

Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period. When an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying 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 as income immediately.

Given the Group's current operating structure the lowest level at which cash flows can reasonably be assessed is the Retail and Solutions segments. The Group prepares detailed forward projections which are constantly updated and refined. Based on these projections the Board does not consider that any further impairment of assets is required, other than that recognised in the Income Statement.

Land and Buildings
£m
Fixtures, Fittings, Plant and Machinery
£m
Motor Vehicles
£m
Total
£m
Cost
At 29 November 201580.7403.355.2539.2
Additions27.663.716.6107.9
Internal development costs capitalised10.110.1
Disposals(0.1)(4.9)(7.5)(12.5)
At 27 November 2016108.2472.264.3644.7
Additions10.974.514.6100.0
Internal development costs capitalised11.811.8
Disposals(1.3)(4.8)(6.1)
At 3 December 2017119.1557.274.1750.4
Accumulated Depreciation
At 29 November 2015(20.5)(170.0)(21.4)(211.9)
Charge for the period(1.9)(33.4)(11.7)(47.0)
Impairment(1.0)(1.0)
Disposals0.14.97.512.5
At 27 November 2016(22.3)(199.5)(25.6)(247.4)
Charge for the period(2.9)(39.3)(12.8)(55.0)
Impairment(0.4)(0.4)
Disposals1.34.86.1
At 3 December 2017(25.2)(237.9)(33.6)(296.7)
Net Book Value
At 27 November 201685.9272.738.7397.3
At 3 December 201793.9319.340.5453.7

Included within property, plant and equipment is capital work-in-progress for land and buildings of £37.2 million (2016: £27.4 million) and capital work-in-progress for fixtures, fittings, plant and machinery of £61.6 million (2016: £22.9 million).

The net book value of non-current assets held under finance leases is set out below:

Land and Buildings
£m
Fixtures, Fittings, Plant and Machinery
£m
Motor Vehicles
£m
Total
£m
At 27 November 2016
Cost30.9209.863.5304.2
Accumulated depreciation and impairment(19.5)(110.6)(25.0)(155.1)
Net book value11.499.238.5149.1
At 3 December 2017
Cost31.9211.161.5304.5
Accumulated depreciation and impairment(21.2)(127.8)(26.2)(175.2)
Net Book Value10.783.335.3129.3

Property, plant and equipment with a net book value of £nil (2016: £19.0 million) has been pledged as security for the secured loans (Note 4.2).