SMITH & NEPHEW PLC | CIK:0000845982 |

Accounting policies

Property, plant and equipment

Items of property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is ultimately recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold land is not depreciated. The estimated useful lives of items of property, plant and equipment is 3–20 years and for buildings is 20–50 years.

Assets in course of construction are not depreciated until they are available for use.

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

Finance costs relating to the purchase or construction of property, plant and equipment and intangible assets that take longer than one year to complete are capitalised based on the Group weighted average borrowing costs. All other finance costs are expensed as incurred.

Impairment of assets

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which it belongs.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value-in-use. In assessing value-in-use, its estimated future cash flow is discounted to its present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks specific to the asset.

Land and buildings

Plant and equipment

Assets in

course of

Freehold

Leasehold

Instruments

Other

construction

Total

Notes

$ million

$ million

$ million

$ million

$ million

$ million

Cost

At 1 January 2016

154

58

1,042

1,003

156

2,413

Exchange adjustment

(6)

 –

(22)

(46)

(5)

(79)

Acquisitions

21

 –

 –

 2

 –

 –

 2

Additions

 1

 1

166

72

80

320

Disposals

21

 –

 –

(76)

(39)

(3)

(118)

Transfers

16

60

 4

33

(113)

 –

At 31 December 2016

165

119

1,116

1,023

115

2,538

Exchange adjustment

 6

 1

63

33

 3

106

Acquisitions

21

 –

 –

 –

 1

 –

 1

Additions

 1

 –

176

28

103

308

Disposals

 –

(27)

(73)

(79)

(12)

(191)

Transfers

56

(20)

 2

56

(115)

(21)

At 31 December 2017

228

73

1,284

1,062

94

2,741

Depreciation and impairment

At 1 January 2016

48

35

732

655

11

1,481

Exchange adjustment

(3)

 –

(15)

(34)

 –

(52)

Charge for the year

 5

 7

131

81

 –

224

Disposals

 –

 –

(67)

(30)

 –

(97)

At 31 December 2016

50

42

781

672

11

1,556

Exchange adjustment

 3

 –

45

24

 –

72

Charge for the year

 6

 7

146

84

 –

243

Disposals

 –

(22)

(67)

(74)

(11)

(174)

Transfers

 2

 3

(1)

(9)

 –

(5)

At 31 December 2017

61

30

904

697

 –

1,692

Net book amounts

At 31 December 2017

167

43

380

365

94

1,049

At 31 December 2016

115

77

335

351

104

982