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 might differ from those estimates.
The following judgements have been made by the directors in applying the company's accounting policies:
Property, plant and equipment
At each reporting date property, plant and equipment is assessed for any indication of impairment. If such an indication exists, the recoverable amount of the asset is determined based on value in use calculations which require estimates to be made of future cash flows. An impairment loss is recognised where the carrying amount exceeds the recoverable amount.
Consignment stock
Consignment stock has been included within the company's Statement of Financial Position on the grounds that the company considerably bears the risks and rewards of ownership attached to these vehicles. As such, the consignment stock is considered to be under control of the company.
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 perform regular reviews to assess if any provision is required.
Brand incentives
The company receives income in the form of various incentives which are determined by the company's 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 and promotional expenditure. Where such contributions are received they are recognised as a reduction in the related expenditure in the period to which they relate.