The Edinburgh Investment Trust Plc Annual Financial Report 2022 - Flipbook - Page 62
60 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC
Notes to the Financial Statements / continued
G. Expenses and Finance Costs
Expenses are recognised on an accruals basis and finance costs are recognised using the effective interest method in the income statement.
The investment management fee and finance costs are allocated 70% to capital and 30% to revenue. This is in accordance with the
Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the portfolio.
Transaction costs are recognised as capital in the income statement. All other expenses are allocated to revenue in the income statement.
H. Taxation
The liability to corporation tax is based on net revenue for the year, excluding non-taxable dividends. The tax charge is allocated between
the revenue and capital account on the marginal basis whereby revenue expenses are matched first against taxable income in the
revenue account.
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where
transactions or events that result in an obligation to pay more tax or a right to pay less tax in the future have occurred. Timing differences
are differences between the Company’s taxable profits and its results as stated in the financial statements. Deferred taxation assets are
recognised where, in the opinion of the Directors, it is more likely than not that these amounts will be realised in future periods.
A deferred tax asset is only recognised in respect of surplus management expenses, losses on loan relationships and eligible unrelieved
foreign tax to the extent that it is probable that the Company will be able to recover them from future taxable revenue.
I. Dividends Payable
Dividends are not recognised in the accounts unless there is an obligation to pay at the balance sheet date. Proposed dividends are
recognised in the year in which they are paid to shareholders.
J. Critical accounting estimates and judgements
The Directors made one significant accounting judgement during the year as set out in the paragraph below.
Daily Mail & General Trust ("DMGT") Capital Special Dividend – £10,036,000
On 12 July 2021, DMGT announced that its controlling shareholder, Rothermere Continuation Limited (“RCL”), had notified it of a possible
offer for the entire issued, and to be issued, share capital of DMGT not already owned by RCL.
On 3 November 2021, it was announced that the Non-conflicted DMGT Directors and RCL had reached agreement on the terms of a
recommended cash offer for DMGT by RCL, and a conditional special distribution, to all shareholders, of substantially all of the cash in the
Group and its stake in Cazoo Group.
This Special Dividend was treated as Capital in nature due to the source being covered by the proceeds of disposal of the non-core parts
of the business and the distribution of surplus capital leaving Rothermere Continuation Limited to purchase the remaining newspaper
businesses. The Special Dividend was declared on 16 December 2021 and went ex-dividend on 17 December 2021.
This amount is disclosed as part of the amount in the footnote of Note 2 Income.
With the exception of this and the allocation of the investment management fee and finance costs between capital and revenue as
described in Note 1G, the Directors do not believe that any other significant accounting judgements have been made. There are no
estimates that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next
financial year.
K. Accounting for reserves
The share premium comprises the net proceeds received by the Company following the issue of shares, after deduction of the nominal
amount of 25 pence and any applicable issue costs. The capital redemption reserve maintains the equity share capital of the Company
and arose from the nominal value of any shares bought back and cancelled; both are non-distributable.
The capital reserve includes the investment holding gains/(losses), being the difference between cost and market value at the balance
sheet date. It also includes cumulative realised gains/(losses) and costs related to share buybacks. Capital investment gains and losses are
shown in note 9(b) and form part of the capital reserve.