LucyGroup-ARA2024_spreads web ready_FINAL

PRINCIPAL ACCOUNTING POLICIES CONTINUED

BUSINESS OVERVIEW STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION

Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. Significant management judgement When preparing the financial statements, management makes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses. The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements. Revenue recognition IFRS 15 requires significant judgements and estimates related to determining performance obligations within contracts with customers. Assumptions are also required in relation to determining appropriate measures of progress towards completion and how and when control of goods or services is transferred to the customer. Development expenditure Distinguishing the research and development phases of internally generated assets, and determining whether the recognition requirements for the capitalisation of development costs are met, requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. Taxation Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities. Deferred tax The extent to which deferred tax assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and tax loss carry- forwards can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.

Estimation uncertainty Information about estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different. Impairment of non-financial assets and goodwill In assessing impairment, management estimates the recoverable amount of each asset or cash-generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate. Useful lives of depreciable assets Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technological obsolescence that may change the utility of certain software and equipment. Inventories Management estimates the net realisable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realisation of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices. Defined benefit obligation Management’s estimate of the defined benefit obligation is based on a number of critical underlying assumptions such as standard rates of inflation, mortality, discount rate and anticipation of future salary increases. Variation in these assumptions may significantly impact the defined benefit obligation amount and the annual defined benefit expenses. Fair value measurement Management uses valuation techniques to determine the fair value of financial instruments (where active market quotes are not available) and non-financial assets. Management bases its assumptions on observable data as far as possible, but this is not always available. In that case, management uses the best information available. Investment properties are valued using professional advice.

The Group has elected to take advantage of the research and development expenditure credit (RDEC) introduced in the Finance Act 2013 in the UK. The credit is used to discharge the corporation tax liability for the Company in the period and, if there is a remainder, it can be surrendered to another Group company. The Group recognises research and development expenditure credit as an item of other income, taking advantage of the ‘above the line’ presentation. Cash In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months. Short-term, highly liquid investments are measured at fair value. Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts, which are repayable on demand and form an integral part of the Group’s cash management, are included as a component of cash and cash equivalents for the purpose only of the cash flow statement. Equity and reserves Share capital represents the nominal (par) value of shares that have been issued. Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date. Post-employment benefits The Group provides post-employment benefits through various defined contribution and defined benefit plans. In the United Kingdom, the Group operates a pension scheme providing benefits based on final pensionable pay for eligible employees, who joined on, or before, 10 April 2002. The pension cost of the defined benefit scheme is charged to the income statement so as to spread the cost of pensions over employees’ working lives with the Group. Defined contribution schemes include a Group Personal Pension plan, including auto enrolment. The pension costs of these schemes are charged as incurred. Employee benefits are provided elsewhere in the Group through defined benefit and defined contribution schemes, in accordance with local labour laws.

Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Company is able to control the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all, or part, of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised. The rate is based on tax rates that have been enacted, or substantively enacted, by the reporting date. Deferred tax is charged or credited in the income statement, except where it relates to items charged or credited in Other Comprehensive Income or in equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities, and the deferred taxes relates to the income taxes levied in the same taxation authority on either the same entity or on different taxable entities, which intend to settle the current tax assets and liabilities on a net basis. Government grants Government grants are initially recognised in the statement of financial position as deferred income, or for grants related to assets only, by deducting the grant in arriving at the carrying amount of the assets when there is reasonable assurance that the entity will comply with the relevant conditions and the grant will be received. Subsequently, deferred income is released to the income statement on a systematic basis as the cost that the grant is intended to compensate is expensed.

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Lucy Group Ltd Annual Report & Accounts 2024

LUCYGROUP.COM

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