Annual Reports Keepmoat Homes Annual Report 2018 | Page 32

Principal consolidated accounting policies

Keepmoat . com 32

Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use . This condition is regarded as met only when the asset ( or disposal group ) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets ( or disposal groups ) and the sale is highly probable . Management must be committed to the sale , which should be expected to qualify for recognition as a completed sale within one year from the date of classification .

When the Group is committed to a sale plan involving loss of control of a subsidiary , all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met , regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale .

Non-current assets ( and disposal groups ) classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell .

Revenue and profit recognition

Revenue and profit are recognised as follows :

Private house building , property development and land sales

Revenue and profits on these activities are included in the financial statements on legal completion .

Revenue in respect of the sale of residential properties is recognised at the fair value of the consideration received or receivable upon legal completion . Open market sale plots are recognised at the agreed sales price deemed to be fair value , whilst sales to registered providers are recognised at the fair value of the sale .

Construction contracts

Revenue on construction contracts represents the fair value of work done and excludes value added tax and trade discounts . Once the outcome of a construction contract can be estimated reliably , margin is recognised in the income statement on a stage of contract completion basis by reference to management ’ s estimate of total forecast value less total forecast costs based on the proportion of total costs incurred to date on the contract as a whole . Provision is made in full for any potential loss on construction contracts as soon as such losses become apparent .

Claims on customers or third parties for variations to the original contract are recognised in the income statement once entitlement to the claim has been established . Claims by customers or third parties in respect of work carried out are recognised in the income statement once the obligation to transfer economic benefit has become probable .

On the balance sheet , the Group reports the net contract position for each contract as either an asset or a liability . A contract represents an asset where costs incurred plus recognised profits ( less recognised losses ) exceed progress billings ; a contract represents a liability where the opposite is the case .

Exceptional items

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group . They are material items of income or expense that have been shown separately due to the significance of their nature or amount .

Goodwill

Goodwill arises on business combinations and represents the excess of the fair value of the consideration given over the fair value of the Group ’ s share of the identifiable net assets acquired at the acquisition date . It is recognised as an asset and reviewed for impairment at least annually or when there is a triggering event , by considering the net present value of future cash flows . For the purposes of testing for impairment , the carrying value of goodwill is compared to its recoverable amount , which is the higher of the value in use and the fair value less costs to sell . Any impairment is charged immediately to the income statement .

Where the fair value of the consideration given is less than the fair value of the Group ’ s share of the identifiable net assets acquired , the difference is immediately recognised in the income statement as a gain from a bargain purchase .

Goodwill is allocated to cash generating units for the purpose of impairment testing . The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose .

Intangible assets

Other intangible assets , such as those identified on acquisition by the Group that have finite lives , are recognised at fair value and measured at cost less accumulated amortisation and impairment losses .

Intangible assets are being amortised over the following periods , with amortisation being charged to cost of sales unless otherwise stated :

Contracted customer relationships – in line with expected profit generation , over a term of seven years

Computer software – on a straight line basis over three years . ( Amortisation expense included in administrative expenses ).

Intangible assets with a finite useful economic useful life are tested for impairment when there is an indication that the intangible asset may be impaired .