Accounting
convention
The accounts have been
prepared in accordance with the Companies Act 1985, as amended
and with all applicable financial reporting and accounting standards
under the historical cost convention modified to include the
revaluation of certain properties.
FRS18 – Accounting Policies and applicable sections of
FRS17 – Retirement Benefits were adopted during the year
to 31 July 2001.
Basis of consolidation
The consolidated financial
statements have been prepared under merger accounting principles
to include the parent company and subsidiary undertakings of
both Smiths Group plc and TI Group plc.
The results of subsidiaries acquired during the year are consolidated
from the date of acquisition.
Up to 1 August 1998, goodwill arising on consolidation, representing
the difference between the cost of acquisition of a subsidiary
undertaking and the fair value of its net assets at the date
of acquisition, was charged to reserves in the year of acquisition.
Goodwill impairment on prospective disposals is recognised through
the Profit and Loss Account.
Following the implementation of FRS10 – Goodwill and Intangible
Assets, goodwill arising from acquisitions after 1 August 1998
is capitalised at cost, and amortised on a straight-line basis
over an estimated useful economic life of up to 20 years.
Turnover
Turnover represents the invoiced amount
of goods sold and services provided during the year, after the
deduction of trade discounts and sales related taxes, and the
value of work undertaken during the year on long-term contracts.
Research and development
Expenditure, other than that recoverable
from third parties, is written off in the year in which it is
incurred.
Fixed assets
Depreciation is provided
at rates estimated to write off the relevant assets by equal
annual amounts over their expected useful lives. In general,
the rates used are: Freehold and long leasehold buildings
– 2%, Short leasehold property – over the period of
the lease, Plant, machinery etc. – 10% to 20%, Motor vehicles
– 25%, Tools and other equipment – 10% to 33%.
Fixed assets held under finance leases are capitalised and depreciated
in accordance with the company's depreciation policy. The capital
element of future lease payments is included in creditors.
Payments made under operating leases are charged to the profit
and loss account as incurred over the term of the lease.
Freehold properties
These financial statements
include certain properties at 1974 valuation, less depreciation
on the enhanced values calculated in accordance with the policy
set out above. The directors have decided to invoke the transitional
provisions of FRS15 – Tangible Fixed Assets, and do not
intend to revalue these properties every year.
Leased properties
Where a leasehold property
is vacant, or sub-let under terms such that the rental income
is insufficient to meet all outgoings, provision is made for
the anticipated future shortfall up to termination of the lease.
Stocks
Stocks and work in progress
are valued at cost, including related production overheads,
reduced to estimated net realisable value where appropriate.
Profit is taken on long-term contracts by reference to the work
completed. Provision for losses is made as soon as they are
recognised.
Financial instruments
Financial assets are
recognised in the balance sheet at the lower of cost and net
realisable value. Discounts, premia and related costs of issue
are charged or credited to the profit and loss account over
the life of the asset or liability to which they relate.
The company uses derivative
financial instruments to hedge its exposure to fluctuations
in interest rates and foreign exchange rates.
Receipts and payments on interest rate instruments are recognised
on an accruals basis over the life of the instrument.
Foreign currency assets and liabilities covered by forward contracts
are translated at the contract rates of exchange. Other assets
and liabilities in foreign currencies are translated at closing
rates.
Foreign currencies
The profit and loss accounts of overseas
subsidiaries are translated into sterling at average rates of
exchange for the year.
Exchange adjustments arising from the retranslation of opening
net assets in overseas subsidiaries and their results for the
year at closing rates, and the translation of foreign currency
borrowings to match overseas investments, are taken to the statement
of total recognised gains and losses. All other exchange gains
and losses are taken to the profit and loss account.
Taxation
Deferred tax is recognised in respect
of timing differences that have originated but not reversed
as at the balance sheet date, to the extent that it is considered
probable that a liability or asset will crystallise in the foreseeable
future. Timing differences are differences between the group's
taxable profits and its results as stated in the financial statements
that arise from the inclusion of gains and losses in tax assessments
in periods different from those in which they are recognised
in the financial statements.
Deferred tax is recognised in respect of the retained earnings
of overseas subsidiaries and associates only to the extent that,
at the balance sheet date, dividends have been declared or an
obligation is present to distribute past earnings. Deferred
tax is not recognised on any fixed assets that have been revalued
unless there is a binding agreement to sell the asset.
Deferred tax is measured at the average tax rates that are expected
to apply in the periods in which the timing differences are
expected to reverse, based on tax rates and laws that have been
enacted or substantially enacted by the balance sheet date.
Post retirement benefits
The cost of providing
pensions and post retirement healthcare for employees is charged
in the profit and loss account over the working life of the
employees taking into account the recommendation of qualified
actuaries. Any funding surpluses or deficits that arise are
amortised over the average working life of employees.
