Retirement benefit obligations
Provisions
Critical accounting estimates and assumptions
Principal consolidated accounting policies
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Retirement benefit obligations
( a ) Defined contribution plans
Contributions to defined contribution plans are charged to the income statement as they accrue . Differences between contributions payable in the year and contributions actually paid are included within either accruals or prepayments on the balance sheet .
( b ) Defined benefit plans
For defined benefit plans the Group ’ s retirement benefit obligation is recognised on the balance sheet and represents the deficit or surplus in the Group ’ s defined benefit scheme . The calculation is performed by a qualified actuary on an annual basis . The scheme assets are measured using market values . Pension scheme liabilities are measured using the projected unit actuarial method and are discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability .
The increase in the present value of the liabilities of the Group ’ s defined benefit pension scheme expected to arise from employee service in the period is charged to operating profit . Finance income on the scheme ’ s assets and the increase during the period in the present value of the scheme ’ s liabilities , arising from the passage of time , are included in net interest cost . Actuarial gains and losses are recognised in the consolidated statement of comprehensive income . Gains and losses arising on curtailment and settlements are taken to the income statement as incurred .
Pension scheme surpluses , to the extent that they are considered recoverable , or deficits are recognised in full and presented on the face of the balance sheet .
Provisions
Provisions for remedial contract obligations , vacant property obligations and restructuring costs are recognised when : the Group has a present legal or constructive obligation as a result of past events ; it is probable that an outflow of resources will be required to settle the obligation ; and the amount can be reliably estimated .
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation . The increase in the provision due to passage of time is recognised as interest expense .
Critical accounting estimates and assumptions
The preparation of financial statements under IFRS requires the Group ’ s management to make judgements , estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities , income and expenses . The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis of making judgements about the carrying value of assets and liabilities which are not readily apparent from other sources . Actual results may differ from these estimates . The estimates and underlying assumptions are reviewed on an ongoing basis and any revisions to them are recognised in the period in which they are revised .
The estimates and assumptions that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below .
Goodwill and intangible assets
IFRS 3 requires the identification of acquired tangible assets as part of a business combination . The methods used to value such intangible assets require the use of estimates . Future results are impacted by the length of amortisation periods adopted , and changes to the estimated useful lives which would result in different effects on the income statement and balance sheet .
Goodwill is not amortised but is tested annually for impairment , along with finite life intangible assets and other assets of the Group ’ s cash generating units . Tests for impairment are based on discounted cash flows and assumptions ( including discount rates , timing of cash flows and growth prospects ) which are inherently subjective .
Fair value on land acquired at a discount to market value
Where the Group enters into specific arrangements with partners who provide discounted land in return for the provision of social housing , the fair value of the housing units provided , which equates to the open market value of the discount to land , is reflected in the financial statements . Land value and an amount with land payables in the balance sheets are therefore reflected at fair value , with this fair value being released to revenue and cost of sales as the land is sold .
Estimation of costs to complete , work in progress and contract provisions
In order to determine the profit and loss that the Group is able to recognise on its developments in a specific period , the Group has to allocate total costs of the developments between the proportion completing in the period and proportion to complete in a future period . The assessment of total costs to be incurred requires a degree of estimation . However , Group management has established internal controls to review and ensure the appropriateness of estimates made on an individual site basis .