The principal Group accounting policies, all of which have been applied consistently throughout the current year and the preceding year, are set out below.

Basis of accounting
The financial statements are prepared under the historical cost convention and in accordance with applicable accounting standards.

Basis of consolidation
The Group consolidated financial statements consolidate those of Holidaybreak plc and its subsidiary under takings for the year to 30 September 2002. The results of subsidiary under takings acquired or disposed of are consolidated for the periods from or to the date on which control passed. Acquisitions are accounted for under the acquisition method.

No profit and loss account is presented for Holidaybreak plc, as permitted by Section 230 of the Companies Act 1985. The Company’s profit after tax for the year, determined in accordance with the Act, was £9,365,000 (year ended 30 September 2001 - £8,343,000).

Intangible assets - goodwill
Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised and written off on a straight line basis over its useful economic life, which is assumed to be 20 years. It is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill arising on acquisitions prior to 1 October 1999 was written off to reserves in accordance with the accounting standard then in force. As permitted by FRS10 the goodwill previously written off to reserves has not been reinstated in the balance sheet. On disposal of a previously acquired business, the attributable amount of goodwill previously written off to reserves is included in determining the profit or loss on disposal.

Tangible fixed assets
All tangible fixed assets are shown at cost, net of depreciation and any provision for impairment. Depreciation is provided using the straight-line method at rates calculated to write off the cost less estimated residual value of each asset over its expected useful economic life, as follows:

Investments
In the Company’s balance sheet, investments in subsidiary undertakings are stated at cost less any provision for any impairment. Only dividends received and receivable are credited to the Company’s profit and loss account.

Own shares
Shares held by the employee share ownership trusts are recorded in the balance sheet within fixed asset investments at cost less provision for impairment.

Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date.

Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, at a future date at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements.

Deferred tax is recognised in respect of the retained earnings of overseas subsidiaries only to the extent that, at the balance sheet date, dividends have been accrued as receivable or a binding agreement to distribute past earnings in future has been entered into by the subsidiary.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

Foreign currency
Transactions denominated in foreign currencies are recorded in the local currency at actual exchange rates which are largely based on forward exchange contracts.

Monetary assets and liabilities denominated in foreign currencies at the period end are reported at the rates of exchange prevailing at the period end or, where appropriate, at the rate of exchange in a related for ward exchange contract. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the profit and loss account.

The results of overseas operations are translated at the average rates of exchange during the period and their balance sheets at the rates ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas operations and on foreign currency borrowings, to the extent that they hedge the Group’s investment in such operations, are dealt with through reserves.

Finance costs and debts
Finance costs of debts are recognised in the profit and loss account over the term of such instruments at a constant rate on the carrying amount. Debt is initially stated at the amount of the net proceeds after deduction of issue costs. The carrying amount is increased by the finance cost in respect of the accounting period and reduced by payments made in the period.

Hire purchase agreements
Assets acquired under hire purchase agreements are initially reported at the fair value of the asset with an equivalent liability categorised as appropriate under creditors due within or after one year. The asset is depreciated over its useful economic life. Finance charges are allocated to accounting periods over the period of the agreement to produce a constant rate of return on the outstanding balance. Rentals are apportioned between finance charges and reduction of the liability. Rentals under operating leases are charged on a straight-line basis over the lease term.

Pension costs
The Group provides pensions to directors and senior employees through defined contribution pension schemes. The assets of the schemes are held independently of the Group by an insurance company. The amount charged to the profit and loss account is the contributions payable in the year.

Income recognition
Turnover represents the aggregated amount of gross revenue receivable excluding VAT and similar taxes, from the sale of tours, holidays and other travel services supplied to customers in the ordinary course of business.

Revenue and expenses directly relating to holidays are taken to the profit and loss account on holiday departure. Certain expenses such as the cost of brochure production and promotional material are charged to the profit and loss account over the season to which they relate to the extent that these costs are reasonably assured. Revenue arising from the sale of insurance policies provided by third parties is taken to the profit and loss account on holiday departure.

Derivatives and other financial instruments
Details of all derivatives and other financial instruments are covered in note 16 to the financial statements click here to view.