Annual report and accounts 2023 - Flipbook - Page 153
Strategic Report
Corporate Governance
Accounts
Cash flow hedges
The Group designates certain derivatives as hedging instruments in respect of foreign currency risk in cash flow hedges, including hedges of foreign exchange risk on
firm commitments.
At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management
objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether
the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging relationship
meets all of the following hedge effectiveness requirements:
• There is an economic relationship between the hedged item and the hedging instrument;
• The effect of credit risk does not dominate the value changes that result from that economic relationship. (The Group does not consider credit risk to be material but will
monitor on an ongoing basis); and
• The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the
hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The Group designates the full change in the fair value of a forward contract as the hedging instruments for all of its hedging relationships.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and
accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement
within administration costs. Amounts accumulated in equity are recycled through the income statement in the period when the hedged item affects profit or loss.
Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs
of completing production and selling expenses.
The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their primary distribution
location and condition. This includes direct labour costs and an appropriate share of overheads based on normal operating activity.
Company shares held by employee benefit trusts
Company shares are purchased on behalf of employee benefit trusts to satisfy the liability of various employee share schemes. The amount of the consideration paid,
including directly attributable costs, is recognised as a charge in equity. Purchased shares are classified as Company shares held by employee benefit trusts, and presented
as a deduction from retained earnings.
Current and deferred income tax
Tax on the profit or loss for the year comprises current and deferred tax.
Current tax is charged in the income statement except where it relates to tax on items recognised directly in equity, in which case it is charged to equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the year end date and any adjustment to tax
payable in respect of previous years.
Deferred tax is provided in full using the liability method, providing for temporary differences between the tax bases of assets and liabilities and their carrying amounts,
in the consolidated financial statements.
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