The preparation of the Group financial statements requires the use of certain judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based or as a result of new information or more experience. Significant accounting policies, estimates and assumptions, and judgements are provided below.
Accounting policies that are significant due to the nature of business:
|Revenue recognition||Revenue comprises the fair value of consideration received or receivable for the sale of goods and services. Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have been transferred, which is upon delivery of the goods to the customer's home for Ocado deliveries and upon transfer of goods to the courier for third party deliveries. Revenue from the rendering of services is recognised over the period in which services are rendered.||2.1|
Significant Estimates and Assumptions:
|Cost of Sales||At the period end the Group is required to estimate supplier income due from annual agreements for volume rebates, which span across the year end date. Confirmation of some amounts due is often only received three to six months after the period end.||2.1|
|Share options and other equity instruments||The cost of equity-settled transactions with employees is measured, where appropriate, with reference to the fair value at the date on which they are granted. Estimates applied or used in a valuation model in order to calculate the cost include, but are not limited to, the expected life of the award, the number of awards that will ultimately vest and the expected volatility of the Company's share price.||4.10|
|Recognition of deferred tax assets||Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Recognition, therefore, involves judgement regarding the prudent forecasting of future taxable profits of the business and in applying an appropriate risk adjustment factor.||2.8|
|Intangible assets (capitalisation of software costs)||The cost of internally generated assets is capitalised as an intangible asset where it is determined by management's judgement that the ability to develop the assets is technically feasible, will be completed, and that the asset will generate economic benefit that outweighs its cost.||3.1|
|Exceptional items A||The Group applies judgement in identifying the significant non-recurring items of income and expense that are recognised as exceptional to help provide an indication of the Group's underlying business performance.||2.7|
|Share options and other equity instruments||The selection of valuation models, such as the Black–Scholes model, and parameters used in order to determine the fair value of certain share awards requires judgement.||4.10|
In order to assess whether it is appropriate for the Group to be reported as a going concern, the Directors apply judgement, having undertaken appropriate enquiries and having considered the business activities and the Group's principal risks and uncertainties.
In arriving at this judgement there are a large number of assumptions and estimates involved in calculating future cash flow projections. This includes management's expectations of revenue, EBITDA A, timing and quantum of future capital expenditure and estimates and cost of future funding.
The Group is required to undergo an assessment of the future viability of assets grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The Directors judge that under the Group's current operating structure, the lowest level at which cash flows can be assessed is for the Group as a whole.
Other estimates, assumptions and judgements are applied by the Group. These include, but are not limited to, depreciation and amortisation on tangible and intangible assets respectively, and provisions. These estimates, assumptions and judgements are also evaluated on a continual basis but are not significant.
A See Alternative Performance Measures