The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities at the reporting date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates.
The following judgements (apart from those involving accounting estimates) have had the most significant effect on amounts recognised in the financial statements:
Stock valuation
Stock valuation is regularly monitored against age profile and market demand. Management use a number of market tools during the appraisal process including Glass' and CAP valuation guides. The directors maintain oversight of ageing stock profiles and a monthly review of any provision required is performed.
Consignment stock
Vehicles held on consignment have been included in 'stocks' on the basis that the company has determined that it holds the significant risks and rewards attached to these vehicles.
Incentives and other rebates from brand partner
The company receives income in the form of various incentives which are determined by its brand partner. The amount receivable is generally based on achieving specific objectives such as a specified sales volume, as well as other objectives including maintaining brand partner standards which may include, but are not limited to, retail centre image and design requirements, customer satisfaction survey results and training standards. Objectives are generally set and measured on either a quarterly or annual basis.
Where incentives are based on a specific sales volume or number of registrations, the related income is recognised as a reduction in cost of sales when it is reasonably certain that the income has been earned. This is generally the later of the date the related vehicles are sold or registered or when it is reasonably certain that the related target will be met. Where incentives are linked to retail centre image and design requirements, customer satisfaction survey results or training standards, they are recognised as a reduction in cost of sales when it is reasonably certain that the incentive will be received for the relevant period.
The company may also receive contributions towards advertising, promotional expenditure. Where such contributions are received they are recognised as a reduction in the related expenditure in the period to which they relate.