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Keepmoat Annual Report 2020

  • Text
  • Lease
  • Keepmoat
  • Strategic
  • Annual
  • Income
  • Assets
  • Limited
  • Homes
  • Statements
  • October
Keepmoat has released its Group financial results for the year ending 31 October 2020.

PRINCIPAL CONSOLIDATED

PRINCIPAL CONSOLIDATED ACCOUNTING POLICIES Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cashgenerating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Research and development Research and development activities are typically self-initiated in nature. Costs for self-initiated research and development activities are assessed to determine if they qualify for recognition as internally generated intangible assets based on the following criteria: • It is technically feasible to complete the intangible asset so that it will be available for use; • Management intends to complete the intangible asset and use or sell it; • There is an ability to sell the intangible asset; • It can be demonstrated how the intangible asset will generate probable future economic benefits; • Adequate technical, financial and other resources to complete the development and to use or sell the intangible are available; • The expenditure attributable to the intangible during its development can be reliably measured. Further to meeting these criteria, only such costs that relate solely to the development phase of a self-initiated project are capitalised, this includes the capitalisation of labour costs associated with the development phase. Any costs incurred as part of the research phase and any other development expenditures which do not satisfy the criteria are expensed as incurred. 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 • Land development rights – in line with expected profit generation, varying from one to twenty years • Computer software – on a straight-line basis over three years. (Amortisation expense is 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. Property, plant and equipment All property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment losses. The cost of tangible fixed assets is their purchase cost, together with any incidental expenses of acquisition. Depreciation is calculated so as to write off the cost of each asset, less their estimated residual value, on a straight-line basis over their estimated useful economic lives, or until the date of disposal. The principal annual rates used for this purpose are: Leasehold property improvements Plant, equipment, fixtures and fittings No depreciation is provided on freehold land. Leases Accounting policy applied until 31 November 2019 (IAS 17) Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. The Group rents surplus property under short and mediumterm arrangements. Income is recognised over the period of lease when the Group can reliably measure likely flow of economic benefits. These are treated as operating lease arrangements. Accounting policy applied from 1 November 2019 (IFRS 16) The Group has lease contracts for property, plant hire used in development and construction, cars and sale and leaseback of show homes. Rental contracts are typically made for fixed periods of a minimum of 7 years but may have extension options. Contracts may contain both lease and non-lease components. The company allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which the company is a lessee and for which it has major leases, it has elected not to separate lease and nonlease components and instead accounts for these as a single lease component. % Over the lease term 10 - 50 76 KEEPMOAT.COM

FINANCIAL REVIEW Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. Prior to 1 January 2019, leases of property, plant and equipment were classified as either finance leases or operating leases. For financial periods commencing from 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the company. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • Fixed payments (including in-substance fixed payments), less any lease incentives receivable; • Variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date; • Amounts expected to be payable by the company under residual value guarantees; • The exercise price of a purchase option if the company is reasonably certain to exercise that option; and • Payments of penalties for terminating the lease, if the lease term reflects the company exercising that option. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the company, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The company is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost comprising the following: • The amount of the initial measurement of lease liability; • Any lease payments made at or before the commencement date less any lease incentives received; • Any initial direct costs; and • Restoration costs. Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straightline basis. If the company is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Shortterm leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and some plant on hire. Where the Group has acquired the right to develop land under a build lease the Groups interest in the land is held in inventory as a right-of-use asset. The corresponding lease liability is recognised in “development land payables” within trade and other payables and is appropriately discounted. There has been no change to the accounting treatment of these arrangements under IFRS16. Trade receivables Trade receivables are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest rate method, less loss allowance. The loss allowance is calculated based on historic loss rates from payment profiles of sales in prior periods. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the debtor’s ability to settle the receivable. In respect of accounting for trade and other receivables, the Group has applied IFRS 9’s simplified approach to provisioning and has calculated this using lifetime expected losses. When a trade receivable is wholly or partially uncollectible, any uncollectible amount is written off against the loss allowance. Subsequent recoveries of amounts previously written off are credited against the loss allowance. Changes in the carrying amount of the loss allowance are recognised in the income statement. Impairment of financial assets IFRS 9 requires an expected credit loss model requiring the assessment of the expected credit loss on each class of financial asset at each reporting date. This includes trade receivables, amounts due from related party undertakings, other receivables and contract assets. This assessment takes into consideration changes in credit risk since initial recognition of the financial asset. Inventories Inventories are held at the lower of cost or net realisable value. Costs comprise land, materials, applicable direct labour and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs to sell, including sales and marketing costs. Land held for development and land under development until ANNUAL REPORT & FINANCIAL STATEMENTS 2020 77