In the application of the Group's accounting policies, which are described in the Statement of Significant Accounting Policies, the Directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the change takes place if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The critical judgments, estimates and assumptions that have the most important significant impact on the carrying value of the assets and liabilities recognised in the Group Accounts, and will have the most significant impact in the next financial year, are detailed below. All of the below are estimates made by the Group apart from post-employment benefits which is an item that requires both judgment and estimation.
At 31 December 2016 trade payables is presented net of £73.4m (2015: £72.7m) due from suppliers in respect of supplier rebates where the Group has the right to net settlement. Included within prepayments and accrued income is £56.1m (2015: £53.2m) due in relation to supplier rebates where there is no right to offset against trade payable balances. Supplier rebate income is significant to the Group's result, with a substantial proportion of purchases covered by rebate agreements. Supplier rebate income affects the recorded value of cost of sales, trade payables, trade and other receivables, and inventories. Customer rebates affect the recorded value of revenue and trade receivables. The amounts payable and receivable under rebate agreements are often subject to negotiation after the balance sheet date. A number of agreements are non-coterminous with the Group's financial year, requiring judgment over the level of future purchases and sales. At the balance sheet date the Directors estimate the amount of rebate that will become payable by and due to the Group under these agreements based upon prices, volumes and product mix.
The Group operates six defined benefit pension schemes. All post-employment benefits associated with these schemes have been accounted for in accordance with IAS 19 "Employee Benefits". As detailed within the Statement of Significant Accounting Policies, in accordance with IAS 19, all actuarial gains and losses have been recognised immediately through the Consolidated Statement of Comprehensive Income.
For all defined benefit pension schemes, pension valuations have been performed using specialist advice obtained from independent qualified actuaries. In performing these valuations, significant actuarial assumptions and judgments have been made to determine the defined benefit obligation, in particular with regard to discount rate, inflation and mortality. At 31 December 2016 the Group's retirement benefit obligations were £37.1m (2015: £23.8m). Appropriate sensitivities have been performed and disclosed in Note 29c.
Impairment of non-current assets
The Group tests goodwill, intangible assets and property, plant and equipment annually for impairment, or more frequently if there are indications that an impairment may be required.
Determining whether goodwill is impaired requires an estimation of the value in use of the CGUs to which goodwill has been allocated. The key estimates made in the value in use calculation are those regarding discount rates, sales growth rates, and expected changes to selling prices and direct costs to reflect the operational gearing of the business. The Directors estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money for the Group. For those businesses not based in the UK or Western Europe, the cash flows are further risk-adjusted to reflect the risks specific to that individual CGU.
For the majority of the CGUs, the Group performs goodwill impairment reviews by forecasting cash flows based upon the following year's budget, which anticipates sales growth, and a projection of cash flows based upon industry growth expectations (0%-4%) over a further period of four years. Where detailed five year forecasts for a CGU have been prepared and approved by the Board, which can include higher growth rates or varied results reflecting specific economic factors, these are used in preparing cash flow forecasts for impairment review purposes. After this period, the sales growth rates applied to the cash flow forecasts are no more than 1% and operating profit growth no more than 4% in perpetuity. The discount rates applied to all CGUs represent pre-tax rates.
Assumptions regarding sales and operating profit growth, gross margin, and discount rate are considered to be the key areas of estimation in the impairment review process, and appropriate sensitivities have been performed and disclosed in Note 12.
Impairments are allocated initially against the value of any goodwill and intangible assets held within a CGU, with any remaining impairment applied to property, plant and equipment on a pro rata basis.
The carrying amount of relevant non-current assets at 31 December 2016 is £556.9m (2015: £668.4m). The most recent results of the impairment review process are disclosed in Note 12 and indicated that the carrying value of non-current assets associated with the Group's Larivière, Poland, Carpet & Flooring and Drywall Qatar CGUs were no longer supportable. Impairment reviews performed during the year indicated that the carrying value of the Group's other non-current assets at 31 December 2016 were considered supportable.
Provisions against receivables
At 31 December 2016 the Group has recognised trade receivables with a carrying value of £417.0m (2015: £386.9m). Using information available at the balance sheet date, the Directors make judgments and detailed estimates based on experience regarding the level of provision required to account for potentially uncollectible receivables.