1 Accounting policies

Introduction
A summary of the principal accounting policies is set out below. The policies have been applied consistently, in all material respects throughout the current and the previous year save as set out below.
The Group has applied FRS 17 ‘Retirement Benefits’ for the first time resulting in the recognition in the balance sheet of the net assets of the Group’s defined benefit pension scheme, calculated on the basis set out in the employee costs section. The comparatives have been restated.
The Group has adopted early Financial Reporting Standard 20 ‘Share-based Payment’(FRS 20), which was published in April 2004, and Urgent Issues Task Force Abstract 38 ‘Accounting for ESOP Trusts’ (UITF 38). No restatement of the prior period is necessary as the effect in respect of the current and prior years is not considered material.

Accounting basis
The accounts are prepared in accordance with applicable United Kingdom accounting standards and under the historical cost convention as modified by the revaluation of investment properties and fixed asset investments.

Consolidation
The consolidated accounts include the accounts of the parent and all subsidiaries.
Subsidiaries or joint ventures acquired or disposed of during the year are included from the date of acquisition or to the date of disposal and accounted for under the acquisition or gross equity method. In order to give a true and fair view the goodwill in relation to the consolidation of former joint ventures has been calculated in accordance with FRS 2 (see note 13). Accounting practices of subsidiaries and joint ventures which differ from Group accounting policies are adjusted on consolidation.
Negative goodwill attributable to discounts received in the purchase price of corporate acquisitions for contingencies, such as tax on unrealised gains on revalued property, is shown separately on the balance sheet and released to the profit and loss account when the related property is sold.

Joint ventures and other investments
Joint ventures are accounted for under the gross equity method, whereby the Group’s balance sheet discloses the Group’s share of the gross assets and gross liabilities of its joint ventures. The Group’s share of joint venture operating profit, net interest payable and taxation are included at the relevant point in the Group profit and loss account.
Other fixed asset investments are stated at market value when listed and at directors’ valuation when unlisted. Any surplus or deficit arising on revaluation is taken to the revaluation reserve, unless a deficit is expected to be permanent, in which case it is charged to the profit and loss account.
Current asset investments are stated at the lower of cost and net realisable value. Investments in subsidiaries are stated at cost or directors’ valuation.

Properties
Investment properties, including freehold and long leasehold properties, are independently valued each year on an open market basis. Any surplus or deficit arising is transferred to the revaluation reserve, unless a deficit is expected to be permanent, in which case it is charged to the profit and loss account. The profit on disposal is based on book value.
In accordance with Statement of Standard Accounting Practice 19 no amortisation or depreciation is provided in respect of freehold or long leasehold properties. The directors consider that this accounting policy, which represents a departure from the statutory accounting rules, is necessary to provide a true and fair view. The financial effect of the departure from these rules cannot reasonably be quantified, as depreciation or amortisation is only one of the many factors reflected in the annual valuation and the amount which might otherwise have been shown cannot be separately identified or quantified. Where properties held for investment are appropriated to trading stock, they are transferred at market value.
Development properties are included in investment properties and stated at cost, except where the open market value falls below cost, when they are revalued to the lower amount. The revaluation deficit is transferred to the revaluation reserve unless it represents a clear consumption of economic benefits, in which case it is charged to the profit and loss account. The cost of properties in the course of development includes attributable interest and other outgoings having regard to the development potential of the property. Interest is calculated on the development expenditure by reference to specific borrowings where relevant and otherwise on the average rate applicable to short-term loans. Interest is not capitalised where no development activity is taking place. A property ceases to be treated as a development on practical completion.
Trading properties are stated at the lower of cost and net realisable value. Disposals are recognised on completion: profits and losses arising are recognised through the profit and loss account. If properties held for trading are appropriated to investment, they are transferred at book value.

Debt instruments and interest rate derivatives
Debt instruments are stated at their net proceeds on issue. Issue costs are amortised to the profit and loss account over the life of the instrument and are included in interest payable.
Amounts payable or receivable under interest rate derivatives are matched with the interest payable on the debt which the derivatives hedge. In the course of the Group’s investment and financing activity underlying debt may be retired or redeemed such that an interest rate derivative becomes surplus. In these circumstances the derivative is marked to market or closed out. Any deficit/surplus arising is charged/credited to the profit and loss account and included in net interest payable.

Parent company
In accordance with Section 230(3) of the Companies Act 1985 a separate profit and loss account for the parent is not presented.

Taxation
Corporation tax payable is provided on taxable profits at the current rate.
On disposal of an investment property the element of tax relating to the profit in the year is charged to the profit and loss account and the element relating to earlier revaluation surpluses is included in the statement of total recognised gains and losses.
Deferred tax assets and liabilities arise from timing differences between the recognition of gains and losses in the financial statements and their recognition in a tax computation.
Deferred tax is provided in respect of all timing differences that have originated, but not reversed, at the balance sheet date that may give rise to an obligation to pay more or less tax in the future. Deferred tax is not recognised when fixed assets are revalued unless, by the balance sheet date, there is a binding agreement to sell the revalued assets and the gain or loss expected to arise on sale has been recognised in the financial statements.
Deferred tax is measured on a non-discounted basis. A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Net rental income
Rental income is recognised on an accruals basis. Rent increases arising from rent reviews are taken into account when such reviews have been settled with tenants. Where a lease incentive does not enhance the property, it is amortised on a straight-line basis over the period from the date of lease commencement to the earlier of the first rent review to the prevailing market rent, the first break option, or the end of the lease term. On new leases with rent free periods, rental income is allocated evenly over the period from the date of lease commencement to the earlier of the first rent review to the prevailing market rate and the lease end date.

Employee costs
Defined benefit pension scheme assets are measured using fair values; pension scheme liabilities are measured using the projected unit method and discounted at the rate of return of a high quality corporate bond of equivalent term to the scheme liabilities. The net surplus or deficit is recognised in full in the consolidated balance sheets.
The current service cost and gains and losses on settlement and curtailments are charged to operating profit. Past service costs are recognised in the profit and loss account if the benefits have vested or, if they have not vested, over the period until vesting occurs. The interest cost and the expected return on assets are included as other finance income or interest payable. Actuarial gains and losses are recognised in the statement of total recognised gains and losses.
Contributions to the Group’s defined contribution schemes are expensed on the basis of the contracted annual contribution.

Share-based incentives
In accordance with FRS 20 the fair value of equity-settled share-based payments to employees is determined at the date of grant and is expensed on a straight-line basis over the vesting period based on the Group’s estimate of shares or options that will eventually vest. In the case of options granted, fair value is measured by a Black-Scholes pricing model. Further details are set out in note 9.