Implementation of IFRS - P2
Paragon Group Of Companies PLC
21 February 2006
Page 55
ILLUSTRATIVE RESTATEMENT OF 1 OCTOBER 2005 BALANCE SHEET UNDER IFRS
Introduction
This section presents the balance sheet of the Group as at 1 October 2005,
restated on the basis which the Group expects to use in compiling its financial
statements for the year ending 30 September 2006.
Basis of preparation
The Group is required to prepare its consolidated financial statements for the
year ending 30 September 2006 in accordance with the International Financial
Reporting Standards which are expected to be effective and endorsed by the
European Union at 30 September 2006.
This section should be read in conjunction with the information presented in the
earlier sections.
The treatment shown represents the Group's present understanding of the effect
which the full application of IFRS will have on the Group's accounting in the
accounts for the year ending 30 September 2006. It is therefore possible that
these treatments may change, in the light of any changes to IFRS or its
interpretation or in emerging market practice before those accounts are produced.
IFRS 1 Exemptions
IFRS 1 sets out procedures which the Group must follow when it adopts IFRS
for the first time as the basis of preparation of its consolidated financial
statements. The Group is required to determine appropriate accounting policies
in compliance with IFRS and, in general, to apply them retrospectively in
determining the opening IFRS balance sheet at its date of transition, 1 October
2004.
The particular exemptions being applied by the Group are discussed in the
earlier sections of this document.
IFRS 1 allows that IAS 32 - 'Financial Instruments: Disclosure and Presentation'
and IAS 39 - 'Financial Instruments: Recognition and Measurement' be applied
with effect from 1 October 2005, without retrospective restatement of figures
reported for earlier periods. The Group has taken advantage of this exemption
and this section shows how the adoption of these standards affects the
consolidated balance sheet at that date.
Under IAS 39 hedge accounting is permitted, but the standard requires that
hedges are designated and fully documented at their inception. IFRS 1 extends
this to allow hedge accounting for any existing hedges at 1 October 2005, so
long as the appropriate documentation is in place at that date, and the Group
has taken advantage of this exemption. IFRS 1 restricts the hedge accounting
adjustments at 1 October 2005 to the lower of the hedge adjustment arising on
the hedged item and that arising on the hedging instrument.
Accounting policies
The Group's accounting policies have been revised to comply with IFRS. Those
changes required to adopt the Proforma basis are described in the previous
section on pages 38 to 46. The additional changes to policies to adopt IFRS in
full (the 'On-going basis'), and their impact on the Group's balance sheet at 1
October 2005, are described below and shown in the table on page 57.
Fair Values and hedging
Under IAS 39 certain financial instruments are carried at fair value, including
all derivatives. Movement in these fair values is shown in the income statement
for the period, but this effect is mitigated where the derivative is used for
hedging purposes and can be shown to be 'highly effective', subject to the hedge
accounting criteria of IAS 39 being met.
________________________________________________________________________________
Page 56
ILLUSTRATIVE RESTATEMENT OF 1 OCTOBER 2005 BALANCE SHEET UNDER IFRS
Where a derivative is designated as a fair value hedge, the carrying value of
hedged items is adjusted for those changes in fair value relating to the hedged
risk and this adjustment is offset against the movement in the fair value of the
derivative in the income statement. Where a derivative is designated as a cash
flow hedge, only that part of the movement in fair value relating to
inefficiency in the hedging arrangement affects profit, the remainder being
taken to equity. Any gains or losses taken to equity will be recognised in the
income statement at the same time as the effect of the hedged item.
Compared to the Group's balance sheet at 30 September 2005 prepared under the
Proforma basis (which excludes fair value and hedging impacts), application of
the full requirements of IAS 32 and IAS 39 reduces the Group's net assets and
total equity by £4.1m.
________________________________________________________________________________
Page 57
ILLUSTRATIVE RESTATEMENT OF 1 OCTOBER 2005 BALANCE SHEET UNDER IFRS
------------------------------------------------------------------------------------------------------------------------
Analysis of adjustments to the Balance Sheet
1 October 2005
========================================================================================================================
UK GAAP Statutory Statutory Proforma Proforma Fair value On-going
basis basis basis basis adjustments IFRS
adjustments adjustments basis
£m £m £m £m £m £m £m
Non-current
assets
Intangible
assets (9.9) 10.2 0.3 - 0.3 - 0.3
Property,
plant and
equipment 8.7 11.0 19.7 - 19.7 - 19.7
Financial
assets 5,538.7 990.0 6,528.7 (97.6) 6,431.1 23.9 6,455.0
Deferred tax
asset - 5.7 5.7 29.2 34.9 1.7 36.6
---------------------------------------------------------------------------------
5,537.5 1,016.9 6,554.4 (68.4) 6,486.0 25.6 6,511.6
---------------------------------------------------------------------------------
Current
assets
Other
receivables 7.8 (1.2) 6.6 - 6.6 (2.3) 4.3
Cash and cash
equivalents 445.2 85.2 530.4 - 530.4 - 530.4
---------------------------------------------------------------------------------
453.0 84.0 537.0 - 537.0 (2.3) 534.7
---------------------------------------------------------------------------------
Total assets 5,990.5 1,100.9 7,091.4 (68.4) 7,023.0 23.3 7,046.3
=================================================================================
Equity
shareholders'
funds
Share 12.1 - 12.1 - 12.1 - 12.1
capital
Share 70.2 - 70.2 - 70.2 - 70.2
premium
Merger (70.2) - (70.2) - (70.2) - (70.2)
reserve
Cash flow
hedge reserve - - - - - (2.6) (2.6)
Profit and
loss account 318.7 4.8 323.5 (68.4) 255.1 (1.5) 253.6
---------------------------------------------------------------------------------
Share capital
and reserves 330.8 4.8 335.6 (68.4) 267.2 (4.1) 263.1
Own shares (22.8) - (22.8) - (22.8) - (22.8)
---------------------------------------------------------------------------------
308.0 4.8 312.8 (68.4) 244.4 (4.1) 240.3
---------------------------------------------------------------------------------
Current
liabilities
Financial
liabilities - 0.9 0.9 - 0.9 - 0.9
Current tax
liabilities - 12.9 12.9 - 12.9 - 12.9
Other
liabilities 81.7 (21.8) 59.9 - 59.9 (1.6) 58.3
---------------------------------------------------------------------------------
81.7 (8.0) 73.7 - 73.7 (1.6) 72.1
---------------------------------------------------------------------------------
Non-current
liabilities
Financial
liabilities - 6,684.8 6,684.8 - 6,684.8 29.0 6,713.8
Deferred tax
liability - 0.7 0.7 - 0.7 - 0.7
Retirement
benefit
obligations - 14.6 14.6 - 14.6 - 14.6
Provisions 2.8 (0.7) 2.1 - 2.1 - 2.1
Other
liabilities 5,598.0 (5,595.3) 2.7 - 2.7 - 2.7
---------------------------------------------------------------------------------
5,600.8 1,104.1 6,704.9 - 6,704.9 29.0 6,733.9
---------------------------------------------------------------------------------
5,990.5 1,100.9 7,091.4 (68.4) 7,023.0 23.3 7,046.3
=================================================================================
----------------------------------------------------------------------------------------------
______________________________________________________________________________________________
Page 58
PRESENTATIONAL CHANGES TO 2005 UK GAAP RESULTS
The presentation of financial information under IFRS is governed by IAS 1. In
some cases this will require the presentation of an item in a different
position, or the use of a different description in the IFRS income statement or
balance sheet to that adopted in the UK GAAP profit and loss account or balance
sheet.
To aid understanding, in the preceding sections UK GAAP financial information is
presented in accordance with IFRS formats. This section demonstrates how that
information is derived from that published in the Annual Report and Accounts for
the year ended 30 September 2005 and the Interim Report for the six months ended
31 March 2005.
This section includes adjustments to reclassify balances held within the Group's
contract hire business, because this better reflects the nature of the assets
and liabilities. There is no impact on the profit and loss account from this
change.
All other changes arise from relocation of items. Any changes which relate to
the adoption of a different accounting policy, or the inclusion on the face of
the primary financial statements of items previously shown in notes to the
accounts are dealt with in the preceding sections.
--------------------------------------------------------------------------------
Conversion of UK GAAP Profit and Loss Account to IFRS format
Year to 30 September 2005
================================================================================
Profit and Loss £m £m £m £m UK GAAP information in
Account presented IFRS Income Statement
under UK GAAP format
Interest
receivable 484.4 - 484.4 Interest receivable
Interest
payable and
similar
charges (387.5) - (387.5) Interest payable
-------------------------
Net interest
income 96.9 - 96.9 Net interest income
Other
operating
income 35.9 - 35.9 Other operating income
-------------------------
Total
operating
income 132.8 - 132.8 Total operating income
Operating expense
Other
operating
expenses (44.2)
Amortisation
of negative
goodwill 4.1
---------
Total
operating
expenses (40.1) (4.1) (44.2) Operating expenses
Provisions for
losses (15.9) - (15.9) Impairment losses
----------------
(4.1) 72.7
4.1 4.1 Amortisation of negative
------------------------- goodwill
Operating
profit being
profit on
ordinary
activities
before
taxation 76.8 - 76.8 Operating profit before
taxation
Tax charge on
profit on
ordinary
activities (16.1) - (16.1) Taxation
-------------------------
Profit on
ordinary
activities
after taxation
for the
financial year 60.7 - 60.7 Operating profit after
=============== taxation
Equity dividend (14.4)
----------
Retained profit 46.3
==========
--------------------------------------------------------------------------------
Under IFRS dividends are shown as a deduction from reserves rather than on the
face of the income statement.
________________________________________________________________________________
Page 59
PRESENTATIONAL CHANGES TO 2005 UK GAAP RESULTS
--------------------------------------------------------------------------------
Conversion of UK GAAP balance sheet to IFRS format
30 September 2005
================================================================================
Balance Sheet £m £m £m £m UK GAAP information in
presented under IFRS Balance Sheet
UK GAAP format
Assets Employed
Fixed assets Non-current assets
Intangible
assets
Negative
goodwill (9.9) - (9.9) Intangible assets
Tangible
assets 3.6 5.1 8.7 Property, plant and
equipment
Investments
Assets subject
to
non-recourse
finance 1,116.0
Non-recourse
finance (1,075.2)
----------
40.8
Loans to
customers 5,497.9
5,538.7 - 5,538.7 Financial assets
- Deferred tax asset
----------------------------
5,532.4 5.1 5,537.5
------------------
Current assets Current assets
Stocks 3.0 (3.0)
Debtors
falling due
within one
year 7.7 0.1 7.8 Other receivables
Investments 285.7 (285.7)
Cash at bank Cash and cash
and in hand 159.5 285.7 445.2 equivalents
---------- ------------------
455.9 (2.9) 453.0
----------------------------
5,988.3 2.2 5,990.5
============================
Financed by
Equity Equity shareholders'
shareholders' funds
funds
Called-up
share capital 12.1 - 12.1 Share capital
Share premium
account 70.2 - 70.2 Share premium
Merger reserve (70.2) - (70.2) Merger reserve
Profit and Profit and loss
loss account 318.7 - 318.7 account
----------
318.7
----------------------------
Share capital Share capital and
and reserves 330.8 - 330.8 reserves
Own shares (22.8) - (22.8) Own shares
----------------------------
308.0 - 308.0
-----------------
Provisions for
liabilities
and charges 2.8 (2.8) Current liabilities
- Financial
liabilities
Creditors - Current tax
liabilities
Amounts
falling due
within one
year 80.6 1.1 81.7 Other liabilities
------------------
1.1 81.7
------------------
Non-current
liabilities
- Financial
liabilities
- Deferred tax
liabilities
- Retirement benefit
obligations
2.8 2.8 Provisions
Amounts
falling due
after more
than one year 5,596.9 1.1 5,598.0 Other liabilities
---------- ------------------
5,677.5 3.9 5,600.8
----------------------------
5,988.3 2.2 5,990.5
============================
--------------------------------------------------------------------------------
________________________________________________________________________________
Page 60
PRESENTATIONAL CHANGES TO 2005 UK GAAP RESULTS
--------------------------------------------------------------------------------
Conversion of UK GAAP Profit and Loss Account to IFRS format
Six months to 31 March 2005
================================================================================
Profit and Loss £m £m £m £m UK GAAP information in
Account presented IFRS Income Statement
under UK GAAP format
Interest
receivable 240.9 - 240.9 Interest receivable
Interest
payable and
similar
charges (194.9) - (194.9) Interest payable
------------------------
Net interest income 46.0 - 46.0 Net interest income
Other
operating
income 17.0 - 17.0 Other operating income
------------------------
Total
operating
income 63.0 - 63.0 Total operating income
Operating expense
Other
operating
expenses (20.6)
Amortisation
of negative
goodwill 2.2
---------
Total
operating
expenses (18.4) (2.2) (20.6) Operating expenses
Provisions for
losses (8.5) - (8.5) Impairment losses
----------------
(2.2) 33.9
2.2 2.2 Amortisation of negative
------------------------ goodwill
Operating
profit being
profit on
ordinary
activities
before
taxation 36.1 - 36.1 Operating profit before
taxation
Tax charge on
profit on
ordinary
activities (7.6) - (7.6) Taxation
------------------------
Profit on
ordinary
activities
after taxation
for the
financial year 28.5 - 28.5 Operating profit after
============== taxation
Equity dividend (6.0)
---------
Retained profit 22.5
=========
--------------------------------------------------------------------------------
Under IFRS dividends are shown as a deduction from reserves rather than on the
face of the income statement.
________________________________________________________________________________
Page 61
PRESENTATIONAL CHANGES TO 2005 UK GAAP RESULTS
--------------------------------------------------------------------------------
Conversion of UK GAAP Balance Sheet to IFRS format
31 March 2005
================================================================================
Balance Sheet £m £m £m £m UK GAAP information in
presented under UK IFRS Balance Sheet
GAAP format
Assets Employed
Fixed assets Non-current assets
Intangible
assets
Negative
goodwill (11.8) - (11.8) Intangible assets
Tangible
assets 3.7 5.4 9.1 Property, plant and
equipment
Investments
Assets subject
to
non-recourse
finance 1,341.2
Non-recourse
finance (1,297.8)
----------
43.4
Loans to
customers 4,842.5
----------
4,885.9 - 4,885.9 Financial assets
- Deferred tax asset
--------------------------
4,877.8 5.4 4,883.2
---------------
Current assets Current assets
Stocks 3.2 (3.2)
Debtors
falling due
within one
year 7.5 0.1 7.6 Other receivables
Cash at bank
and Cash and cash
investments 452.5 - 452.5 equivalents
---------- ---------------
463.2 (3.1) 460.1
--------------------------
5,341.0 2.3 5,343.3
==========================
Financed by
Equity Equity shareholders'
shareholders' funds
funds
Called-up
share capital 12.0 - 12.0 Share capital
Share premium
account 69.5 - 69.5 Share premium
Merger reserve (70.2) - (70.2) Merger reserve
Profit and Profit and loss
loss account 293.8 - 293.8 account
--------------------------
Share capital Share capital and
and reserves 305.1 - 305.1 reserves
Own shares (13.8) - (13.8) Own shares
--------------------------
291.3 - 291.3
---------------
Provisions for
liabilities
and charges 4.5 (4.5) Current liabilities
- Financial liabilities
Creditors - Current tax
liabilities
Amounts
falling due
within one
year 77.8 1.1 78.9 Other liabilities
---------------
1.1 78.9
--------------- Non-current
liabilities
- Financial liabilities
- Deferred tax
liabilities
- Retirement benefit
obligations
4.5 4.5 Provisions
Amounts
falling due
after more
than one year 4,967.4 1.2 4,968.6 Other liabilities
---------------
5.7 4,973.1
--------------------------
5,341.0 2.3 5,343.3
==========================
--------------------------------------------------------------------------------
________________________________________________________________________________
Page 62
PRESENTATIONAL CHANGES TO 2005 UK GAAP RESULTS
--------------------------------------------------------------------------------
Conversion of UK GAAP Balance Sheet to IFRS format
30 September 2004
================================================================================
Balance Sheet £m £m £m £m UK GAAP information in
presented under IFRS Balance Sheet
UK GAAP format
Assets Employed
Fixed assets Non-current assets
Intangible
assets
Negative
goodwill (14.0) - (14.0) Intangible assets
Tangible
assets 3.4 6.1 9.5 Property, plant and
equipment
Investments
Assets subject
to
non-recourse
finance 1,557.7
Non-recourse
finance (1,520.3)
----------
37.4
Loans to
customers 4,492.5
----------
4,529.9 - 4,529.9 Financial assets
- Deferred tax asset
-----------------------------
4,519.3 6.1 4,525.4
-------------------
Current assets Current assets
Stocks 3.4 (3.4)
Debtors
falling due
within one
year 8.8 0.1 8.9 Other receivables
Investments 230.5 (230.5)
Cash at bank Cash and cash
and in hand 172.0 230.5 402.5 equivalents
---------- -------------------
414.7 (3.3) 411.4
-----------------------------
4,934.0 2.8 4,936.8
=============================
Financed by
Equity Equity shareholders'
shareholders' funds
funds
Called-up
share capital 12.0 - 12.0 Share capital
Share premium
account 68.8 - 68.8 Share premium
Merger reserve (70.2) - (70.2) Merger reserve
Profit and Profit and loss
loss account 270.1 - 270.1 account
----------
268.7
-----------------------------
Share capital Share capital and
and reserves 280.7 - 280.7 reserves
Own shares (12.3) - (12.3) Own shares
-----------------------------
268.4 - 268.4
-------------------
Provisions for
liabilities
and charges 5.6 (5.6) Current liabilities
- Financial
liabilities
Creditors - Current tax
liabilities
Amounts
falling due
within one
year 66.4 1.6 68.0 Other liabilities
-------------------
1.6 68.0
-------------------
Non-current
liabilities
- Financial
liabilities
- Deferred tax
liabilities
- Retirement benefit
obligations
5.6 5.6 Provisions
Amounts
falling due
after more
than one year 4,593.6 1.2 4,594.8 Other liabilities
---------- -------------------
4,660.0 6.8 4,600.4
-----------------------------
4,934.0 2.8 4,936.8
=============================
--------------------------------------------------------------------------------
________________________________________________________________________________
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