Notes to the Annual Financial Statements

1 Notes to the Annual Financial Statements231. Accounting PoliciesThe Financial information of the Massmart Group isprepared on the historical cost Financial Statements have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice. The principleaccounting policies adopted are set out below. Thesepolicies have been consistently applied except asdisclosed in note of the group comprises net sales excludingvalue added tax, royalties, franchise fees, interestreceived, investment income, finance charges andmanagement of goods are recognised when title haspassed.

2 Interest income is accrued on a time basis,by reference to the principal outstanding and theinterest rate applicable. Dividend income frominvestments is recognised when the shareholders rights to receive payment have been , plant, equipment and depreciationFreehold land and buildings and leasehold improve-ments are shown at valuation or at cost. Valuationsare carried out by the directors annually and byprofessional valuers from time to time. Freehold land andbuildings and leasehold improvements are classifiedas investment properties and are not lease premiums and leasehold improvementsare written-off over the lease periods or such shorterperiods as may be property, plant and equipment is shown attheir original cost less accumulated is provided on the straight-line basisover the estimated useful lives of the assets concerned,as follows.

3 Plant, vehicles and fixtures4 to 5 years Computer equipmentand software3 to 5 years Leasehold improvementsLease periodComputer softwareComputer software is capitalised where expenditureincurred will lead to future benefits accruing to thegroup. Costs are amortised on the straight-line basisover estimated useful lives of the software charge for taxation is based on the results for theyear as adjusted for items which are non-assessableor disallowed. Temporary differences arise fromdifferences between the carrying amounts of assetsand liabilities in the Financial Statements and thecorresponding tax basis used in the computation ofassessable tax profit.

4 In general deferred tax liabilitiesare recognised for all taxable temporary differencesand deferred tax assets are recognised to the extentthat it is probable that taxable profit will be availableagainst which deductible temporary differencescan be utilised. Such assets and liabilities are notrecognised if the temporary difference arises fromgoodwill or from the initial recognition of other assetsand liabilities which affects neither the tax profit northe accounting profit at the time of the tax liabilities are recognised for taxabletemporary differences associated with investmentsin subsidiaries and associates.

5 Except where theMassmart Group is able to control the reversal ofthe temporary difference and it is probable thatthe temporary difference will not reverse in theforeseeable tax is calculated at the tax rates that areexpected to apply to the period when the asset isrealised or the liability settled. Deferred tax is chargedor credited in the income statement, except when itrelates to items credited or charged directly to equity, inwhich case the deferred tax is also dealt with in , which consist of merchandise, are valuedat the lower of cost and net realisable value.

6 Cost iscalculated on the weighted average or retail benefit costsPayments to defined contribution plans are chargedas an expense as they fall due. There are no opendefined benefit plans in the Massmart to the Annual Financial Statements (continued)24 Interests in associatesAn associate is an enterprise over which the MassmartGroup is in a position to exercise significant influence,through participation in the Financial and operatingpolicy decisions of the results and assets and liabilities of associatesare incorporated in these Financial Statements using theequity method of accounting.

7 The carrying amountof such interests is reduced to recognise any decline,other than a temporary decline, in the value ofindividual a group enterprise transacts with an associateof the Massmart Group, unrealised profits and lossesare eliminated to the extent of the Massmart Group sinterest in the relevant associate, except whereunrealised losses provide evidence of an impairmentof the asset group Annual Financial Statements incorporatethe Annual Financial Statements of the company and itssubsidiaries. The operating results of the subsidiariesare included from the effective dates of acquisitionand up to the effective dates of disposal.

8 Premiumsarising on the acquisition of subsidiaries as well asintangible assets acquired are written-off againstshare premium, and, to the extent that share premiumis exhausted, are written-off against retained amounts represent the excess of the price paidover the fair value of the net tangible assets acquiredat date of acquisitionAll significant inter-company transactions and balanceshave been assetsAssets held under finance leases are capitalisedat their fair value at the date of acquisition. Thecorresponding liability to the lessor, net of financecharges, is included in the balance sheet as a financelease obligation.

9 Finance costs, which represent thedifferences between the total leasing commitmentsand the fair value of the assets acquired, are chargedto the income statement over the term of the relevantlease so as to produce a constant periodic rate ofcharge on the remaining balance of the obligations foreach accounting payable under operating leases are chargedto income on a straight-line basis over term of therelevant currency transactionsTransactions in foreign currencies are accounted for atthe rate of exchange ruling on the date of assets and liabilities denominated in suchcurrencies are re-translated at the rates ruling onthe balance sheet

10 Date. Profits and losses arising onexchange are dealt with in the income has a policy of covering forward all itsforeign exchange transactions of a trading currency balancesAssets and liabilities denominated in foreign currencieshave been accounted for at the rates of exchange rulingat the balance sheet date, or at the forward ratedetermined in forward exchange contracts. Gains andlosses arising on translation are dealt with in theincome investmentsThe balance sheets of consolidated foreign subsidiariesare translated into South African Rand at the rate ofexchange ruling at the balance sheet date.