The acquisition method of accounting is used for the acquisition of subsidiaries. The cost of the acquisition is measured at the aggregate fair value of the consideration given. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 "Business Combinations" are recognised at their fair value at the date the Group assumes control of the acquiree.
Acquisition related costs are recognised in the Consolidated income statement as incurred. If the business combination is achieved in stages, the acquisition date fair value of the Group's previously held investment in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Certain assets and liabilities are not recognised at their fair value at the date control was achieved as they are accounted for using other applicable IFRSs. These include deferred tax assets/liabilities (IAS 12 "Income Taxes"), any assets related to employee benefit arrangements (IAS 19 "Employee Benefits" and IFRS 2 "Share-Based Payment") and non-current assets held for sale or discontinued operations (IFRS 5 "Non-Current Assets Held for Sale").
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the valuation of the fair value of assets and liabilities acquired is still in progress. Those provisional amounts are adjusted during the measurement period of one year from the date control is achieved when additional information is obtained about facts and circumstances which would have affected the amounts recognised as of that date.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement measured at fair value at the date control is achieved. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs.
Investments in subsidiaries
Investments in subsidiaries held by the Company are carried at cost less accumulated impairment losses.
Goodwill represents the difference between the fair value of the assets given in consideration and the fair value of identifiable assets, liabilities and contingent liabilities of the acquiree.
On 3 November 2014 Speciality Stores Limited, a Group subsidiary, acquired 100% of the issued share capital of Paws & Purrs Ltd, obtaining control of the entity. The principal activity of Paws & Purrs Ltd is the sale of pet products. It was acquired to further develop the non-food operations of the Group. Total consideration transferred was £15,000, acquiring £20,000 of gross assets and £5,000 of net assets resulting in a net cash outflow of £7,000. Goodwill of £10,000 has been recognised, being the consideration paid in excess of the value of acquired net assets.