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The following principal accounting policies have been applied consistently in dealing with items which are considered material in relation to the group's accounts.
The accounts are prepared in accordance with the historical cost convention and in accordance with applicable accounting standards in the United Kingdom. The accounts reflect the adoption of UITF 38, Accounting for ESOP trusts, during the year ended 31 December 2004 and further details regarding this are set out in Note 22.
The group accounts include the accounts of the company and all of its subsidiary undertakings made up to 31 December 2004.
Unless otherwise stated, the acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the year are included in the consolidated profit and loss account from the date of acquisition or up to the date of disposal.
Purchased goodwill (representing the excess of the fair value of the consideration given and associated costs over the fair value of the separable net assets acquired) arising on the acquisition of subsidiary undertakings before 1 January 1998, when FRS 10, Goodwill and Intangible Assets, was adopted, has been written off to reserves in the year of acquisition. When a subsequent disposal occurs any related goodwill previously written off to reserves is written back through the profit and loss account as part of the profit or loss on disposal.
Purchased goodwill arising on the acquisition of subsidiary undertakings since 1 January 1998 is capitalised and amortised by equal annual instalments over its estimated useful life up to a maximum of 20 years. Should the value of this goodwill become recognised as impaired, an impairment charge would be made against operating profit.
On the subsequent disposal or termination of a business acquired since 1 January 1998, the profit or loss on disposal or termination is calculated after charging the unamortised amount of any related goodwill.
Turnover comprises sales invoiced (excluding value added tax). For contracts involving the installation and testing by the customer, revenue is recognised at the point of customer acceptance.
Tangible fixed assets are stated at historic cost.
Depreciation is calculated to write off the difference between the cost or valuation of fixed assets and their residual value over their estimated useful lives on a straight line basis at the following rates per annum:
| Fixed Asset | Rate of Depreciation |
|---|---|
| Freehold and long leasehold buildings | 2½%-5% |
| Short leasehold property | over the period of the lease |
| Plant, machinery and other equipment | 5%-20% |
| Motor vehicles | 25% |
| Tooling, computer hardware and software | 20%-33⅓% |
Investments in subsidiaries and other investments are stated at cost, less provision for any permanent diminution in value.
Stocks and work in progress are valued at the lower of cost and net realisable value. Cost represents direct cost incurred and, where applicable, a proportion of attributable overheads. Provision is made for slow moving and obsolete items based on an assessment of technological and market developments and on an analysis of historic and projected usage. Stock is accounted for on a first in first out basis.
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction (or if hedged forward, at the rate of exchange under the related forward currency contract). Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account.
The assets and liabilities (and profit and loss accounts) of overseas subsidiary undertakings are translated at the closing rates. Profit and loss accounts of such undertakings are consolidated at the average rates of exchange during the year. Gains and losses arising on these translations are taken to reserves, net of exchange differences arising on related foreign currency borrowings.
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19.
Annual payments under operating leases are charged to the profit and loss account on an accruals basis.
Research and development expenditure is written off as it is incurred, except to the extent that it is funded by customers.
The group operates defined contribution pension schemes. The assets of the schemes are held separately from those of the group in an independently administered fund. The amounts charged against profits represent the contributions payable to the scheme in respect of the accounting period.
The group operates pension schemes providing benefits based on final pensionable pay. The assets of the schemes are held separately from those of the group. Pension scheme assets are measured using market values. Pension scheme liabilities are measured using a projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability.
The pension scheme surplus (to the extent it is considered recoverable) or deficit is recognised in full and presented on the face of the balance sheet. The movement in the scheme surplus/deficit is split between operating charges, financing items and, in the statement of total recognised gains and losses, actuarial gains and losses.