3. Determination of Fair Values
A number of the Group’s accounting
policies and disclosures require the determination of fair value for
both financial and non-financial assets and liabilities. Fair values
have been determined for measurements and/or disclosure purposes based
on the following methods. When applicable, further information about
the assumptions made in determining fair values is disclosed in the
notes specific to that asset or liability.
Derivates
The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds).
The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market rates for a similar instrument at the measurement date.
Property, Plant and Equipment
The fair value of property, plant and equipment recognized as a result of a business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value of items of plant, equipment, fixtures and fittings is based on the quoted market prices for similar items.
Intangible Assets
The fair value of recipes acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of the recipe being owned. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
Investments and Other Financial Liabilities
The fair value of investments traded on organized financial markets is determined by reference to the stock exchange quoted market bid price at the close of business on the balance sheet date. The fair value of investments for which there is no active market is determined by reference to the current market value of comparable instruments or is calculated based on the expected cash flows from the underlying asset. The fair value of financial liabilities, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate on the reporting date.