Basis of accounting
The financial statements have been prepared under the historical cost convention modified by the revaluation of certain tangible fixed assets and in accordance with applicable UK accounting standards.

Consolidation
The consolidated financial statements incorporate the accounts of IMI plc and all of its subsidiary undertakings made up to 31 December 1998. The results of subsidiary undertakings acquired or sold during the year are included from the date of acquisition or to the date of disposal. Acquisitions during the year have been recognised by the acquisition method of accounting.

The Company has not presented a separate profit and loss account as is permitted by Section 230 of the Companies Act 1985.

Foreign currencies
Assets and liabilities denominated in foreign currencies have been translated into sterling at the rate of exchange ruling on 31 December 1998. The profit and loss accounts of overseas subsidiary undertakings are translated at the appropriate average rate of exchange for the year and the adjustment to year end rates is taken directly to reserves. Exchange differences arising on the retranslation of the opening net assets of foreign subsidiaries, foreign currency loans used for overseas investment and transactions executed solely for the purpose of hedging foreign currency assets exposure are taken directly to reserves. Differences arising on revenue transactions in the year are reflected in profit before taxation.

Goodwill
Goodwill arising in respect of acquisitions completed after 1 January 1998, being the excess of the consideration paid over the fair value of the net assets acquired, is capitalised as a fixed asset and amortised on a straight line basis from the date of acquisition over its estimated useful life up to a maximum of 20 years. Goodwill arising from acquisitions completed prior
to 1 January 1998, when FRS10 Goodwill and intangible assets was adopted, was deducted from reserves in the year of acquisition. Goodwill previously deducted from reserves is taken through the profit and loss account when acquired businesses are sold or closed. The net assets of businesses acquired are incorporated into the consolidated financial statements at their fair value to the Group.

Tangible fixed assets
Freehold land and assets in the course of construction are not depreciated. Depreciation is calculated so as to write off the cost of other tangible fixed assets to residual values over the period of their estimated useful lives within the following ranges:

Expenditure on patents purchased by the Group is charged against profits in the year in which it is incurred.

Research and development
Expenditure on research and development is charged against profits in the year in which it is incurred, except for expenditure on tangible fixed assets which is capitalised and depreciated in the normal manner.

Stocks
Stocks are valued at the lower of cost and net realisable value. In respect of work in progress and finished goods, cost includes all direct costs of production and the appropriate proportion of production overheads.

Turnover
Turnover represents amounts invoiced by the Group in respect of goods and services provided during the year, excluding sales between Group companies and sales-related taxes.

Taxation
Provision is made for deferred taxation in respect of timing differences to the extent that such liabilities are expected to become payable in the foreseeable future. Full provision is made for timing differences arising on pensions and other post-retirement benefits.

No provision is made for any additional taxation which might become payable in the event of a distribution out of retained profits of overseas subsidiaries.

Pensions and post-retirement benefits
The Group operates a number of pension plans throughout the world which cover the majority of Group employees. With certain exceptions referred to in the notes relating to the financial statements the funds of the plans are administered by Trustees and are separate from the Group. Valuations are normally carried out every three years by independent actuaries and annual contributions are paid to the plans in accordance with their recommendations.

The amount charged to the profit and loss account in respect of defined benefit pension plans is calculated so as to spread the cost of pensions over the average remaining service life of the employees in accordance with the advice of qualified actuaries. The amount charged in respect of defined contribution plans is in accordance with the rules of the plans.

Full provision is made for the current actuarial liability for US post-retirement medical and life assurance plans.

Leasing
Assets acquired under hire purchase and finance leasing contracts are recorded in the balance sheet as fixed assets at their equivalent capital value and are depreciated over the useful life of the asset. The corresponding liability is recorded as a creditor and the interest element of the amount paid is charged against profits. Payments under operating leases are charged to the profit and loss account as they arise. The majority of leasing transactions entered into by the Group are operating leases.