Notes to the Financial Statements (continued) for the year ended 30 September 2011
1. Accounting policies (continued)
Investment assets (continued) (ii) Unquoted investments (continued) Private equity funds and property funds (continued) The majority of valuations are at the balance sheet date. In a very limited number of cases where information is not available as at 30 September, the most recent valuations from the manager are adjusted for cash flows and foreign exchange movements between the most recent valuation and the balance sheet date. In the unlikely event that a valuation is unavailable the investment will be held at cost less impairment. The total amount of investments held at cost less impairment is disclosed in the Financial Statements. Direct investments Unquoted direct investments are held at the valuation determined by management, with valuations, when provided by a third party investment manager as a key input subject to appropriate review by management. (iii) Investment properties Investment properties are valued at fair value, which is usually equivalent to open market value. The valuations are estimated by third party professional valuers; however, where properties are acquired close to the balance sheet date, valuations are not obtained because the acquired properties are recorded at fair value upon initial recognition, which management considers to be a reasonable estimate of fair value at the balance sheet date. Property transactions are recognised on the date of completion. (iv) Derivative financial instruments Derivative financial instruments are used as part of the Trust’s portfolio risk management and as part of the Trust’s portfolio management and investment return strategy. The Trust’s use of derivative financial instruments includes index‑linked futures, stock options, warrants and currency forwards. The Trust’s exchange traded options are stated at fair value, equivalent to the market value on the relevant exchange. Long‑term linked currency forwards are stated at management’s view of fair value, using the market value of a transaction with equivalent cash flows. The Trust’s warrants are held at the fair value determined by management. These will generally reflect the valuations used by the Trust’s co‑investment partners where these exist and where there is confidence in their approach. Valuations will generally be intrinsic value, as the best estimate of fair value, but for material warrant holdings the use of a Black‑Scholes valuation methodology will be used by management. Valuation decisions are taken by the Valuation Group, chaired by the Chief Operating Officer. The fair value of contract positions is recognised in the Balance Sheet and gains and losses on the contracts are recognised in the Statement of Financial Activities. (v) Programme related investments Programme related investments are made directly by the charitable divisions in pursuit of the Trust’s charitable aims. Although they may generate a financial return, the primary motivation is to further the objects of the charity. Programme related investments are held at cost less any impairment. Due to the low success rate of these activities, this impairment is generally considered to be 90% of cost. Subsequent adjustments are made as impairment indicators are identified. (vi) Investment cash and certificates of deposit, other investment assets and other investment liabilities Investment cash and certificates of deposit, and debtors and creditors arising as part of the investment portfolio are stated at their fair value. Investments in subsidiaries Subsidiary undertakings formed to hold investments are included in the Trust’s Balance Sheet at their net asset value, which represents the fair value of their underlying net assets. Investments in all other subsidiary undertakings are held at cost less any impairment. Stock Stock consists of raw materials, consumables and goods for sale and is stated at the lower of cost and net realisable value. Cost is determined on a first in first out basis. Where necessary, provision is made for obsolete, slow moving and defective stock.
42 | Annual Report 2011