USE OF ESTIMATES AND JUDGEMENTS Lease liabilities were £2.6m higher (2020: £13.0m) and right- The presentation of the annual financial statements in of-use assets were £2.7m higher (2020: £13.0m) at the period conformity with IFRS requires the Directors to make end date due to the inclusion of property leases where the judgements, estimates and assumptions that affect the current lease term has expired but the lease has been treated application of policies and reported amounts of assets as having been renewed. and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience BASIS OF CONSOLIDATION and various other factors that are believed to be reasonable Subsidiaries under the circumstances. Actual results may differ from these Subsidiaries are entities controlled by the Company. The estimates. financial statements of subsidiaries are included in the consolidated financial statements from the date that control Estimates and underlying assumptions are reviewed on commences until the date that control ceases. an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised Transactions eliminated on consolidation and in any future periods affected. Intra-group balances, and any unrealised gains and losses or The key estimates and judgements used in the financial income and expenses arising from intra-group transactions, statements are as follows: are eliminated in preparing the consolidated financial statements. Consistent accounting policies have been adopted across the Group. Estimate: Inventory provisions The Group provides against the carrying value of the REVENUE inventories held where it is anticipated that net realisable Revenue is generated from the sale of homewares and related value (NRV) will be below cost. NRV is based on estimated goods and services through the Group’s stores and website, selling pricewith future price reductions assumed to be in excluding sales between Group companies, and is after line with historic margin analysis on a line-by-line basis, and deducting returns, relevant discounts and VAT. Revenue is applied to the inventory population as deemed appropriate recognised when the Group has satisfied its performance given the expected sell through period and discontinuation obligations to its customers and the customer has obtained status. A 100 basis points change in the provision rate of each control of the goods and services being transferred. stock discontinuation categorywould lead to a change in the provision of £1.7m (9.8%) (2020: £1.2m (9.7%)). Consideration In general, these conditions for store sales are met at the point is also given to whether any stock categories require of sale. The exceptions to this are custom-made products additional provision due to specific circumstances in and Click & Collect sales, where revenue is recognised at the place at the period end date. point that the goods are collected, and gift vouchers, where Judgement: Determining the lease term revenue is recognised when the vouchers are redeemed aside from the element management do not expect to be The Group has applied judgement to determine the redeemed based on historical data whichis recognised at the lease term for some lease contracts in which it is a lessee point of sale. Revenueon home delivery sales is recognised at that include renewal options and break clauses. At the the point of delivery. Revenue is settled in cash at the point of commencement date of a property lease the Group normally sale for all revenue channels. determines the lease term to be the full term of the lease, assuming that any option to break or extend the lease is The Group has two types of products; stocked products unlikely to be exercised and it is not reasonably certain that and products which are sent directly from suppliers to the Group will continue in occupation for any period beyond customers. Management has established that the Group acts the lease term. Leases are regularly reviewed and will be as a principal for both types of products and thus should revalued if it becomes likely that a break clause or option recognise revenue as the gross amount of consideration to to extend the lease is exercised. which it expects to be entitled. Judgement: Expired leases The Group holds a sales return provision in the Consolidated Judgement has been applied in respect of those property Statement of Financial Position to provide for expected levels leases where the current lease term has expired, but the of returns onsales made before the period end but returned Group remains in negotiation with the landlord for potential after the period end. The Group recognises the expected renewal. Where the Group believes renewal to be highly value of revenue relating to returns within sales provisions and probable and the lease is protected by the Landlord and the expected value of cost of sales relating to the returned Tenants Act (LTA) it will be treated as having been renewed at items is included within inventories. the date of termination of the previous lease term and on the same terms as the previous lease. On completion, the lease For the purposes of the financial statements, management will be revalued to take account of the new terms. Where has concluded that since customers access the Group’s renewal is not considered to be reasonably certain leases are products across multiple channels and their journey often moved into holdover status, and lease payments recognised involves more than one channel, disaggregation of revenue as an expense on a straight-line basis. would not be appropriate. DUNELM GROUP PLC ANNUAL REPORT & ACCOUNTS 2021 191 FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OTHER INFORMATION