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Accounting information and policies (Policies)
 12 Months Ended
Jun. 30, 2025
Disclosure Of Accounting Policies, Changes In Accounting Estimates And Errors [Abstract]  
Basis of preparation (a) Basis of preparation
The consolidated financial statements are prepared in accordance
with IFRS® Accounting Standards (IFRSs) adopted by the UK (UK-
adopted International Accounting Standards) and IFRSs, as issued by
the International Accounting Standards Board (IASB), including
interpretations issued by the IFRS Interpretations Committee. IFRS
as adopted by the UK differs in certain respects from IFRS as issued
by the IASB. The differences have no impact on the group’s
consolidated financial statements for the years presented. The
consolidated financial statements are prepared on a going concern
basis under the historical cost convention, unless stated otherwise in
the relevant accounting policy.
The preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the year. Actual results could differ from those estimates.
Going concern (b) Going concern
Management prepared 18-month cash flow forecasts which reflect
severe but plausible downside scenarios taking into consideration the
group's principal risks. In the base case scenario, management included
assumptions to deliver positive operating leverage, with organic profit
growth ahead of organic net sales growth. In light of the ongoing
geopolitical volatility, the base case outlook and severe but plausible
downside scenarios incorporated considerations for a prolonged global
recession, supply chain disruptions, higher inflation and further
geopolitical deterioration. Even under these scenarios, the group’s
liquidity is still expected to remain strong. Mitigating actions, should
they be required, are all within management’s control and could
include reductions in discretionary spending such as acquisitions and
capital expenditure, lower level of marketing spend and investment in
maturing stock, as well as a temporary suspension or reduction in
dividend to shareholders in the next 12 months, or drawdowns on
committed facilities. Having considered the outcome of these
assessments, the Directors are comfortable that the group (and
company) is a going concern for at least 12 months from the date of
signing the group's consolidated financial statements.
Consolidation (c) Consolidation
The consolidated financial statements include the results of the
company and its subsidiaries together with the group’s attributable
share of the results of associates and joint ventures. A subsidiary is an
entity controlled by Diageo plc. The group controls an investee when it
is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its
power over the investee. Where the group has the ability to exercise
joint control over an entity but has rights to specified assets and
obligations for liabilities of that entity, the entity is included on the
basis of the group’s rights over those assets and liabilities.
Foreign currencies (d) Foreign currencies
Items included in the financial statements of the group’s subsidiaries,
associates and joint ventures are measured using the currency of the
primary economic environment in which each entity operates (its
functional currency). The consolidated financial statements are
presented in US dollar, which is the functional currency of the parent
company, Diageo plc. The functional currency of Diageo plc is
determined by using management judgement that considers the parent
company as an extension of its subsidiaries.
The income statements and cash flows of non-US dollar entities are
translated into US dollar at weighted average rates of exchange,
except for subsidiaries in hyperinflationary economies that are
translated with the closing rate at the end of the year and for
substantial transactions that are translated at the rate on the date of
the transaction. Exchange differences arising on the retranslation to
closing rates are taken to the exchange reserve.
Assets and liabilities are translated at the relevant year end closing
rates. Exchange differences arising on the retranslation at closing rates
of the opening balance sheets of non-US dollar entities are taken to
the exchange reserve, as are exchange differences arising on foreign
currency borrowings and financial instruments designated as net
investment hedges, to the extent that they are effective. Tax charges
and credits arising on such items are also taken to the exchange
reserve. Gains and losses accumulated in the exchange reserve are
recycled to the income statement when the foreign operation is sold.
Other exchange differences are taken to the income statement.
Transactions in foreign currencies are recorded at the rate of exchange
on the date of the transaction.
Critical accounting estimates and judgements (e) Critical accounting estimates and judgements
Details of critical estimates and judgements which the Directors
consider could have a significant impact on the financial statements
are set out in the related notes as follows:
•Taxation – management judgement whether a provision is required
and estimate of amount of corporate tax payable or receivable, the
recoverability of deferred tax assets and expectation on manner of
recovery of deferred taxes – pages 163 and 197.
•Brands, goodwill, other intangibles and contingent considerations –
management judgement whether the assets and liabilities are to be
recognised and synergies resulting from an acquisition. Management
judgement and estimate are required in determining future cash
flows and appropriate applicable assumptions to support the
intangible asset and contingent consideration value – pages 163 and
•Post-employment benefits – management judgement whether a
surplus can be recovered and management estimate in determining
the assumptions in calculating the liabilities of the funds – page 176.
•Contingent liabilities and legal proceedings – management
judgement in assessing the likelihood of whether a liability will arise
and an estimate to quantify the possible range of any settlement;
and significant unprovided tax matters where maximum exposure is
provided for each – page 197.
Hyperinflation (f) Hyperinflationary accounting
The group applied hyperinflationary accounting for its operations in
Türkiye, Ghana and Venezuela.
The group applies hyperinflationary accounting for its operations in
Ghana starting from 1 July 2023. Hyperinflationary accounting needs to
be applied as if Ghana had always been a hyperinflationary economy,
hence, as per Diageo’s accounting policy choice, the differences
between equity at 30 June 2023 as reported and the equity after the
restatement of the non-monetary items to the measuring unit current
at 30 June 2023 were recognised in retained earnings.
The group’s consolidated financial statements include the results and
financial position of its operations in hyperinflationary economies
restated to the measuring unit current at the end of each period, with
hyperinflationary gains and losses in respect of monetary items being
reported in finance income and charges. Comparative amounts
presented in the consolidated financial statements are not restated.
When applying IAS 29 on an ongoing basis, comparatives in stable
currency are not restated and the effect of inflating opening net assets
to the measuring unit current at the end of the reporting period is
presented in other comprehensive income.
Adoption of new IFRS standards and amendments up to current year end (g) New accounting standards and interpretations
The following accounting standards and amendments to standards,
issued by the IASB including those endorsed by the UK, were adopted
by the group from 1 July 2024 with no material impact on the group’s
consolidated results, financial position or disclosures:
•Amendments to IAS 1 – Classification of Liabilities and Non-current
Liabilities with Covenants
•Amendments to IFRS 16 – Lease Liability in a Sale and Leaseback
The group has adopted amendments to IAS 7 and IFRS 7 –
Supplier Finance Arrangements and presents the relevant
transactions accordingly.
New IFRS standards applicable in future years The following amendments issued by the IASB have been endorsed by
the UK and have not yet been adopted by the group, which are not
expected to have material impact on the group's consolidated results
or financial position:
•Amendments to IAS 21 – Lack of exchangeability (effective from the
year ending 30 June 2026)
•Amendments to IFRS 9 and IFRS 7 – Amendments to the Classification
and Measurement of Financial Instruments (effective from the year
ending 30 June 2027)
The impact assessment of IFRS 18 – Presentation and disclosure of
financial statements, which will become effective in the consolidated
group financial statements from the year ending 30 June 2028 – subject
to UK endorsement – is in progress.
There are a number of other standards, amendments and
clarifications to IFRSs, effective in future years, which are not
expected to significantly impact the group’s consolidated results or
financial position.
Climate change considerations (h) Climate change considerations
The impact of climate change assessment and greenhouse gas emission
targets for Diageo's direct operations (Scope 1 and 2) for 2030 have
been considered as part of the assessment of estimates and
judgements in preparing the group's consolidated financial statements.
We integrate climate risk into our enterprise risk management
processes, within our principal risk factors. This is an integral part of
our strategic and business continuity planning.
The climate change scenario analyses performed in 2025 – conducted in
line with TCFD recommendations (a Moderate Warming’ Scenario (RCP
4.5) and a ‘Severe Warming Scenario’ (RCP 8.5)) – identified no
material financial impact to these financial statements.
The following considerations were made in respect of the financial
statements:
•The impact of climate change on factors like residual values, useful
lives and depreciation methods that determine the carrying value of
non-current assets.
•The impact of climate change on forecasts of cash flows used
(including forecast depreciation in line with capital expenditure
plans) in impairment assessments for the value-in-use of non-current
assets including goodwill (see note 9).
•The impact of climate change on post-employment assets.
Sales
Sales comprise revenue from contracts with customers from the sale of goods, royalties and rents receivable. Revenue from the sale of goods
includes excise and other duties which the group pays as principal but excludes duties and taxes collected on behalf of third parties, such as
value added tax. Sales are recognised as or when performance obligations are satisfied by transferring control of a good or service to the
customer, which is determined by considering, among other factors, the delivery terms agreed with customers. For the sale of goods, the
transfer of control occurs when the significant risks and rewards of ownership are passed to the customer. Based on the shipping terms
agreed with customers, the transfer of control of goods occurs at the time of dispatch for the majority of sales. Where the transfer of control
is subsequent to the dispatch of goods, the time between dispatch and receipt by the customer is generally less than five days. The group
includes in sales the net consideration to which it expects to be entitled. Sales are recognised to the extent that it is highly probable that a
significant reversal will not occur. Therefore, sales are stated net of expected price discounts, allowances for customer loyalty and certain
promotional activities and similar items. Generally, payment of the transaction price is due within credit terms that are consistent with
industry practices, with no element of financing.
Net sales
Net sales are sales less excise duties. Diageo incurs excise duties throughout the world. In the majority of countries, excise duties are
effectively a production tax which becomes payable when the product is removed from bonded premises and is not directly related to the
value of sales. It is generally not included as a separate item on external invoices; increases in excise duty are not always passed on to the
customer and where a customer fails to pay for products received the group cannot reclaim the excise duty. The group therefore recognises
excise duty, unless it regards itself as an agent of the regulatory authorities, as a cost to the group.
Advertising costs
Advertising costs, point of sale materials and sponsorship payments are charged to marketing in operating profit when the company has a
right of access to the goods or services acquired.
Exceptional items
Exceptional items are those that in management’s judgement need to be disclosed separately. Such items are included in the income statement
caption to which they relate, and form part of the segmental reporting. Management believes that separate disclosure of exceptional items and the
classification between operating and non-operating further helps investors to understand the performance of the group.
Changes in estimates and reversals in relation to items previously recognised as exceptional are presented consistently as exceptional in the
current year.
Exceptional items are those that in management’s judgement
need to be disclosed separately. Such items are included in the
income statement caption to which they relate, and form part of
the segmental reporting included in note 2. Management
believes that separate disclosure of exceptional items and the
classification between operating and non-operating further helps
investors to understand the performance of the group.
Changes in estimates and reversals in relation to items
previously recognised as exceptional are presented consistently
as exceptional in the current year.
Operating items
Exceptional operating items are those that are unusual or non-
recurring in nature, considered to be of a size that could distort
the performance and are part of the operating activities of the
group, such as one-off global restructuring programmes which
can be multi-year, impairment of intangible assets and fixed
assets, indirect tax settlements, property disposals and changes
in post-employment plans.
Non-operating items
Gains and losses on the sale or directly attributable to a
prospective sale of businesses, brands or distribution rights, step
up gains and losses that arise when an investment becomes an
associate or an associate becomes a subsidiary and unusual non-
recurring items, that are considered to be of a size that could
distort performance and not in respect of the production,
marketing and distribution of premium drinks, are disclosed as
exceptional non-operating items below operating profit in the
income statement.
Exceptional finance income/charge
Exceptional finance incomes/charges are those that are unusual
or non-recurring in nature, considered to be of a size that could
distort the performance and are part of the financing activity of
the group.
Taxation items
Exceptional current and deferred tax items comprise unusual or
non-recurring items, that are considered to be of a size that
could distort performance. Examples include direct tax
provisions and settlements in respect of prior years and the
remeasurement of deferred tax assets and liabilities following
tax rate changes.
Finance income and charges
Net interest includes interest income and charges in respect of
financial instruments and the results of hedging transactions
used to manage interest rate risk. 
Finance charges directly attributable to the acquisition,
construction or production of a qualifying asset, being an asset
that necessarily takes a substantial period of time to get ready
for its intended use or sale, are added to the cost of that asset.
Borrowing costs which are not capitalised are recognised in the
income statement using the effective interest method. All other
finance charges are recognised primarily in the income
statement in the year in which they are incurred. 
Net other finance charges include items in respect of post-
employment plans, the discount unwind of long-term obligations
and hyperinflation charges. The results of operations in
hyperinflationary economies are adjusted to reflect the changes
in the purchasing power of the local currency of the entity
before being translated to US dollar. 
The impact of derivatives, excluding cash flow hedges that
are in respect of commodity price risk management or those
that are used to hedge the currency risk of highly probable
future currency cash flows, is included in interest income or
interest charge.
Investment in associates and joint ventures
An associate is an undertaking in which the group has a long-term
equity interest and over which it has the power to exercise
significant influence. A joint venture is a joint arrangement whereby
the parties that have joint control of the arrangement have rights to
the net assets of the arrangement. The group’s interest in the net
assets of associates and joint ventures is reported in investments in
the consolidated balance sheet and its interest in their results (net
of tax) is included in the consolidated income statement below the
group’s operating profit. Associates and joint ventures are initially
recorded at cost including transaction costs, and the group's share of
post acquisition changes in the investee's reserves are recognised
under the equity method. Investments in associates and joint
ventures acquired prior to 1 July 1998 comprise the cost of shares
less goodwill written off to reserves that has not been reinstated,
plus the group’s share of post acquisition reserves. Investments in
associates and joint ventures are reviewed for impairment whenever
events or circumstances indicate that the carrying amount may not
be recoverable. The impairment review compares the net carrying
value with the recoverable amount, where the recoverable amount
is the higher of the value in use calculated as the present value of
the group’s share of the associate’s future cash flows and its fair
value less costs of disposal.
Taxation
Current tax is based on taxable profit for the year. Taxable profit is different from accounting profit due to temporary differences between
accounting and tax treatments, and due to items that are never taxable or tax deductible. Tax treatments are not recognised unless it is
probable that a tax authority will accept the treatment. Once considered to be probable, tax treatments are reviewed each year to assess
whether a provision should be taken against full recognition of the treatment on the basis of potential settlement through negotiation and/or
litigation with the relevant tax authorities. Tax provisions are included in current liabilities. Penalties and interest on tax liabilities are
included in operating profit and finance charges, respectively.
Full provision for deferred tax is made for temporary differences between the carrying value of assets and liabilities for financial reporting
purposes and their value for tax purposes, except for deferred tax provision arising on goodwill from business combinations. The amount of
deferred tax reflects the expected recoverable amount and is based on the expected manner of recovery or settlement of the carrying
amount of assets and liabilities, using the basis of taxation enacted or substantively enacted by the balance sheet date. Deferred tax assets
are not recognised where it is more likely than not that the assets will not be realised in the future. No deferred tax liability is provided in
respect of any future remittance of earnings of foreign subsidiaries where the group is able to control the remittance of earnings and it is
probable that such earnings will not be remitted in the foreseeable future, or where no liability would arise on the remittance.
Critical accounting estimates and judgements
The group is required to estimate the corporate tax in each of the jurisdictions in which it operates. Management is required to estimate the
amount that should be recognised as a tax liability or tax asset in many countries which are subject to tax audits which by their nature are
often complex and can take several years to resolve; current tax balances are based on such estimations. Tax provisions are based on
management’s judgement and interpretation of country specific tax law and the likelihood of settlement. However, the actual tax liabilities
could differ from the provision and in such event the group would be required to make an adjustment in a subsequent period which could
have a material impact on the group’s profit for the year.
The evaluation of deferred tax asset recoverability requires estimates to be made regarding the availability of future taxable income. For
brands with an indefinite life, management’s intention is to recover the book value through a potential sale in the future, and therefore the
deferred tax on the brand value is generally recognised using the appropriate country capital gains tax rate. To the extent brands with an
indefinite life have been impaired, management considers this to be an indication of recovery through use and in such a case deferred tax on
the brand value is recognised using the appropriate country corporate income tax rate.
Acquisition and sale of businesses and purchase of non-controlling interests
The consolidated financial statements include the results of the company and its subsidiaries together with the group’s attributable share of
the results of associates and joint ventures. The results of subsidiaries acquired or sold are included in the income statement from, or up to,
the date that control passes.
Business combinations are accounted for using the acquisition method. Identifiable assets, liabilities and contingent liabilities acquired are
measured at fair value at acquisition date. The consideration payable is measured at fair value and includes the fair value of any contingent
consideration. Among other factors, the group considers the nature of, and compensation for the selling shareholders' continuing
employment to determine if any contingent payments are for post-combination employee services, which are excluded from consideration.
On the acquisition of a business, or of an interest in an associate or joint venture, fair values, reflecting conditions at the date of acquisition,
are attributed to the net assets, including identifiable intangible assets and contingent liabilities acquired. Directly attributable acquisition
costs in respect of subsidiary companies acquired are recognised in other external charges as incurred.
The non-controlling interests on the date of acquisition can be measured either at the fair value or at the non-controlling shareholder’s
proportion of the net fair value of the identifiable assets assumed. This choice is made separately for each acquisition.
Where the group has issued a put option over shares held by a non-controlling interest, the group derecognises the non-controlling interests
and instead recognises a contingent deferred consideration liability for the estimated amount likely to be paid to the non-controlling interest
on the exercise of those options. Movements in the estimated liability in respect of put options are recognised in retained earnings.
Transactions with non-controlling interests are recorded directly in retained earnings.
For all entities in which the company directly or indirectly owns equity, a judgement is made to determine whether it controls and therefore
should fully consolidate the investee. An assessment is carried out to determine whether the group has the exposure or rights to the variable
returns of the investee and has the ability to affect those returns through its power over the investee. To establish control, an analysis is
carried out of the substantive and protective rights that the group and the other investors hold. This assessment is dependent on the
activities and purpose of the investee and the rights of the other shareholders, such as which party controls the board, executive committee
and material policies of the investee. Determining whether the rights that the group holds are substantive, requires management judgement.
Where less than 50% of the equity of an investee is held, and the group holds significantly more voting rights than any other vote holder or
organised group of vote holders, this may be an indicator of de facto control. An assessment is needed to determine all the factors relevant
to the relationship with the investee to ascertain whether control has been established and whether the investee should be consolidated as a
subsidiary. Where voting power and returns from an investment are split equally between two entities then the arrangement is accounted for
as a joint venture.
On an acquisition, fair values are attributed to the assets and liabilities acquired. This may involve material judgement to determine these values.
Intangible assets and goodwill
Acquired intangible assets are held on the consolidated balance sheet at cost less accumulated amortisation and impairment losses. Acquired
brands and other intangible assets are initially recognised at fair value if they are controlled through contractual or other legal rights, or are
separable from the rest of the business, and the fair value can be reliably measured. Where these assets are regarded as having indefinite
useful economic lives, they are not amortised.
Goodwill represents the excess of the aggregate of the consideration transferred, the value of any non-controlling interests and the fair
value of any previously held equity interest in the subsidiary acquired over the fair value of the identifiable net assets. Goodwill arising on
acquisitions prior to 1 July 1998 was eliminated against reserves, and this goodwill has not been reinstated. Goodwill arising subsequent to 1
July 1998 has been capitalised.
A cash-generating unit (CGU) is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash
inflows from other assets or groups of assets. That is the base of the impairment review.
Amortisation and impairment of intangible assets is based on their useful economic lives and they are amortised on a straight-line basis and
reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. Goodwill and
intangible assets that are regarded as having indefinite useful economic lives are not amortised and are reviewed for impairment at least
annually or when there is an indication that the assets may be impaired. Impairment reviews compare the net carrying value with the
recoverable amount (where recoverable amount is the higher of fair value less costs of disposal and value in use) and in case the net carrying
value exceeds the recoverable amount, an impairment charge is recognised. Amortisation and any impairment write downs are charged to
other operating expenses in the income statement. It is reviewed at each reporting date whether there is any indication that an impairment
loss recognised in prior periods for an asset other than goodwill either no longer exists or has decreased. Reversal of impairment loss is
considered if the recoverable amount of the assets is constantly and significantly above the carrying value over an extended period. The
increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying
amount that would have been determined (net of amortisation) had no impairment loss been recognised for the asset in prior years. Any
reversal of impairment loss is charged against the same income statement line on which the initial impairment was recorded.
Computer software is amortised on a straight-line basis to estimated residual value over its expected useful life. Residual values and useful
lives are reviewed each year. Subject to these reviews, the estimated useful lives are up to eight years. 
Critical accounting estimates and judgements
Assessment of the recoverable amount of an intangible asset and the useful economic life of an asset are based on management's estimates.
Impairment reviews are carried out to ensure that intangible assets, including brands, are not carried at above their recoverable amounts.
Value in use and fair value less costs of disposal are both considered for these reviews and any impairment charge is based on these. The
tests are dependent on management’s estimates in respect of the forecasting of future cash flows, the discount rates applicable to the
future cash flows and what expected growth rates are reasonable. Judgement is required in determining the cash-generating units. Such
estimates and judgements are subject to change as a result of changing economic conditions and actual cash flows may differ from forecasts.
Consideration of climate risk impact
The impact of climate risk on the future cash flows has also been considered for scenarios analysed in line with the climate change risk
assessment. The climate change scenario analyses performed in 2025 – conducted in line with TCFD recommendations (‘Transition
Scenario’ (RCP 2.6), a ‘Moderate Warming’ Scenario (RCP 4.5) and a ‘Severe Warming Scenario (RCP 8.5)) – identified no material financial
impact to the current year impairment assessments.
Property, plant and equipment
Land and buildings are stated at cost less accumulated depreciation. Freehold land is not depreciated. Leaseholds are generally depreciated
over the unexpired period of the lease. Other property, plant and equipment are depreciated on a straight-line basis to estimated residual
values over their expected useful lives, and these values and lives are reviewed each year. Subject to these reviews, the estimated useful
lives fall within the following ranges: buildings – 10 to 50 years; casks and containers within plant and equipment – 15 to 50 years; other plant
and equipment – 5 to 40 years; fixtures and fittings – 5 to 10 years; and returnable bottles, kegs and crates – 5 to 30 years.
Reviews are carried out if there is an indication that assets may be impaired, to ensure that property, plant and equipment are not carried at
above their recoverable amounts.
Government grants
Government grants are not recognised until there is reasonable assurance that the group will comply with the conditions pursuant to which
they have been granted and that the grants will be received. Government grants in respect of property, plant and equipment are deducted
from the asset that they relate to, reducing the depreciation expense charged to the income statement.
Biological assets
Biological assets held by the group consist of agave (Agave Azul
Tequilana Weber) plants. The harvested plants are used during
the production of tequila. The maturity cycle of agave ranges
between six and eight years; based on this, biological assets are
classified as mature and immature. Mature biological assets are
measured at fair value less costs to sell on initial recognition and
at the end of each reporting period based on the present value of
future cash flows discounted at an appropriate rate for Mexico
(income approach as per IFRS 13). Immature biological assets are
plants that have not reached the point of maturity because their
sugar content yield and weight is not enough to be harvested and
there is no active market for such plants; consequently the
company accounts for these assets by applying fair valuation
using the cost approach (replacement cost).
Leases
Where the group is the lessee, all leases are recognised on the
balance sheet as right-of-use assets as part of property, plant
and equipment, and depreciated on a straight-line basis with the
charge recognised in cost of sales or in other operating items
depending on the nature of the costs. The liability, recognised as
part of net borrowings, is measured at a discounted value and
any interest is charged to finance charges.
The group recognises services associated with a lease as other
operating expenses. Payments associated with leases where the
value of the asset when it is new is lower than $5,000 (leases of
low value assets) and leases with a lease term of 12 months or
less (short-term leases) are recognised as other operating
expenses. A judgement in calculating the lease liability at initial
recognition includes determining the lease term where extension
or termination options exist. In such instances, any economic
incentive to retain or end a lease are considered and extension
periods are only included when it is considered reasonably
certain that an option to extend a lease will be exercised.
Other investments
Other investments are equity investments that are not
classified as investments in associates or joint arrangements nor
investments in subsidiaries. They are included in non-current
assets. Subsequent to initial measurement, other investments
are stated at fair value. Gains and losses arising from the
changes in fair value are recognised in the income statement or
in other comprehensive income. Accumulated gains and losses
included in other comprehensive income are not recycled to the
income statement. Dividends from other investments are
recognised in the consolidated income statement.
Loans receivable are non-derivative financial assets that are not
classified as equity investments. They are subsequently
measured either at amortised cost using the effective interest
method less allowance for impairment or at fair value with gains
and losses arising from changes in fair value recognised in the
income statement or in other comprehensive income that are
recycled to the income statement on the de-recognition of the
asset. Allowances for expected credit losses are made based on
the risk of non-payment taking into account ageing, previous
experience, economic conditions and forward-looking data. Such
allowances are measured as either 12-months expected credit
losses or lifetime expected credit losses depending on changes in
the credit quality of the counterparty.
Post employment benefits
The group’s principal post-employment funds are defined
benefit plans. In addition, the group has defined contribution
plans, unfunded post-employment medical benefit liabilities and
other unfunded defined benefit post-employment liabilities. For
post-employment plans other than defined contribution plans,
the amount charged to operating profit is the cost of accruing
pension benefits promised to employees over the year, plus any
changes arising on benefits granted to members by the group
during the year. Net finance charges comprise the net deficit/
surplus on the plans at the beginning of the year, adjusted for
cash flows in the year, multiplied by the discount rate for plan
liabilities. The differences between the fair value of the plans’
assets and the present value of the plans’ liabilities are
disclosed as an asset or liability on the consolidated balance
sheet. Any differences due to changes in assumptions or
experience are recognised in other comprehensive income. The
amount of any pension fund asset recognised on the balance
sheet is limited to any future refunds from the plan or the
present value of reductions in future contributions to the plan.
Contributions payable by the group in respect of defined
contribution plans are charged to operating profit as incurred.
Critical accounting estimates and judgements
Application of IAS 19 requires the exercise of estimates and
judgement in relation to various assumptions.
Diageo determines the assumptions on a country-by-country
basis in conjunction with its actuaries. Estimates are required in
respect of uncertain future events, including the life expectancy
of members of the plans, salary and pension increases, future
inflation rates, discount rates and employee and pensioner
demographics. The application of different assumptions could
have a significant effect on the amounts reflected in the income
statement, other comprehensive income and the balance sheet.
There may be interdependencies between the assumptions.
Where there is an accounting surplus on a defined benefit plan,
management judgement is necessary to determine whether the
group can obtain economic benefits through a refund of the
surplus or by reducing future contributions to the plan.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost includes raw materials, direct labour and expenses,
an appropriate proportion of production and other overheads,
but not borrowing costs. All maturing inventories and raw
materials are classified as current assets, as they are expected
to be realised in the normal operating cycle which can be a
period of several years.
Trade and other receivables
Trade and other receivables are initially recognised at fair
value less transaction costs and subsequently carried at
amortised cost less any allowance for discounts and doubtful
debts. Trade receivables arise from contracts with customers,
and are recognised when performance obligations are satisfied,
and the consideration due is unconditional as only the passage of
time is required before the payment is received. Allowance
losses are calculated by reviewing lifetime expected credit
losses using historic and forward-looking data on credit risk.
Trade and other payables
Trade and other payables are initially recognised at fair value
including transaction costs and subsequently carried at
amortised costs. Contingent considerations recognised in
business combinations are subsequently measured at fair value
through income statement. The group evaluates supplier
arrangements against a number of indicators to assess if the
liability has the characteristics of a trade payable or should be
classified as borrowings. This assessment considers the
commercial purpose of the facility, whether payment terms are
similar to customary payment terms, whether the group is
legally discharged from its obligation towards suppliers before
the end of the original payment term, and the group’s
involvement in agreeing terms between banks and suppliers.
Provisions
Provisions are liabilities of uncertain timing or amount.
A provision is recognised if, as a result of a past event, the group
has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation.
Provisions are calculated on a discounted basis. The carrying
amounts of provisions are reviewed at each balance sheet date
and adjusted to reflect the current best estimate.
Financial instruments and risk management
Accounting policies
Financial assets and liabilities are initially recorded at fair value including, where permitted by IFRS 9, any directly attributable transaction
costs. For those financial assets that are not subsequently held at fair value, the group assesses whether there is evidence of impairment at
each balance sheet date.
The group classifies its financial assets and liabilities into the following categories: financial assets and liabilities at amortised cost, financial
assets and liabilities at fair value through income statement and financial assets at fair value through other comprehensive income.
The accounting policies for other investments and loans are described in note 13, for trade and other receivables and payables in note 15 and
for cash and cash equivalents in note 17.
Financial assets and liabilities at fair value through income statement include derivative assets and liabilities. Where financial assets or
liabilities are eligible to be carried at either amortised cost or fair value through other comprehensive income, the group does not apply the
fair value option.
Derivative financial instruments are carried at fair value using a discounted cash flow model based on market data applied consistently for
similar types of instruments. Gains and losses on derivatives that do not qualify for hedge accounting treatment are taken to the income
statement as they arise.
Other financial liabilities are carried at amortised cost unless they are part of a fair value hedge relationship when the amortised cost of the
financial liabilities is adjusted with the fair value change attributable to the risk being hedged from the inception of the hedge relationship.
The difference between the initial carrying amount of the financial liabilities and their redemption value is recognised in the income
statement over the contractual terms using the effective interest rate method. Financial liabilities in respect of the Zacapa acquisition are
recognised at fair value.
Hedge accounting
The group designates and documents certain derivatives as hedging instruments against changes in fair value of recognised assets and
liabilities (fair value hedges), commodity price risk of highly probable forecast transactions, as well as the cash flow risk from changes in
exchange or interest rates (cash flow hedges) and hedges of net investments in foreign operations (net investment hedges). Derivative
instruments designated in hedge relationship are included in other financial assets and liabilities on the consolidated balance sheet. The
effectiveness of such hedges is assessed at inception and at least on a quarterly basis, using prospective testing. Methods used for testing
effectiveness include critical terms, regression analysis and hypothetical derivative models.
Fair value hedges are used to manage the currency and/or interest rate risks to which the fair value of certain assets and liabilities are
exposed. Changes in the fair value of the derivatives are recognised in the income statement, along with any changes in the relevant fair
value of the underlying hedged asset or liability. If such a hedge relationship no longer meets hedge accounting criteria, fair value
movements on the derivative continue to be taken to the income statement while any fair value adjustments made to the underlying hedged
item to that date are amortised through the income statement over its remaining life using the effective interest rate method.
Cash flow hedges are used to hedge the foreign currency risk of highly probable future foreign currency cash flows, the commodity price risk
of highly probable future transactions, as well as the cash flow risk from changes in exchange or interest rates. The effective portion of the
gain or loss on the hedges is recognised in other comprehensive income, while any ineffective part is recognised in the income statement.
Amounts recorded in other comprehensive income are recycled to the income statement in the same period in which the underlying foreign
currency, commodity or interest exposure affects the income statement. When a hedge relationship no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity is either transferred to the income statement or amortised over its remaining life
using the effective interest rate method.
Net investment hedges utilise either foreign currency borrowings or derivatives as hedging instruments. Foreign exchange differences arising
on translation of net investments are recorded in other comprehensive income and included in the exchange reserve. Liabilities used as
hedging instruments are revalued at closing exchange rates and the resulting gains or losses are also recognised in other comprehensive
income to the extent that they are effective, with any ineffectiveness taken to the income statement. Foreign currency derivative contracts
hedging net investments are carried at fair value. Effective fair value movements are recognised in other comprehensive income, with any
ineffectiveness taken to the income statement. Cost of hedging model is applied in case of cross-currency interest rate swaps in net
investment hedges. The fair value changes attributable to the spot component of the hedging instruments are designated to offset foreign
exchange differences of net investments and therefore taken to net investment hedge reserve. The fair value changes attributable to the
forward component of the hedging instruments (including currency basis) are taken to the cost of hedging reserve and amortised to the
consolidated income statement.
Borrowings
Borrowings are initially recognised at fair value net of
transaction costs and are subsequently reported at amortised
cost. Certain bonds are designated in fair value hedge
relationship. In these cases, the amortised cost is adjusted for
the fair value of the risk being hedged, with changes in value
recognised in the income statement. The fair value adjustment is
calculated using a discounted cash flow technique based on
unadjusted market data. 
Bank overdrafts form an integral part of the group’s cash
management and are included as a component of net cash and
cash equivalents in the consolidated statement of cash flows.
Cash and cash equivalents comprise cash in hand and deposits
which are readily convertible to known amounts of cash and
which are subject to insignificant risk of changes in value and
have an original maturity of three months or less, including
money market deposits, commercial paper and investments.
Net borrowings are defined as gross borrowings (short-term
borrowings and long-term borrowings plus lease liabilities plus
interest rate hedging instruments, cross currency interest rate
swaps and foreign currency forwards and swaps used to manage
borrowings) less cash and cash equivalents.
Own shares
Own shares represent shares and share options of Diageo plc
that are held in treasury or by employee share trusts for the
purpose of fulfilling obligations in respect of various employee
share plans or were acquired as part of a share buyback
programme. Own shares are treated as a deduction from equity
until the shares are cancelled, reissued or disposed of and when
vest are transferred from own shares to retained earnings at
their weighted average cost.
Share based payments
Share-based payments include share awards and options
granted to directors and employees. The fair value of equity
settled share options and share grants is initially measured at
grant date based on Monte Carlo and Black Scholes models and is
charged to the income statement over the vesting period. For
equity settled shares, the credit is included in retained earnings.
Dividends
Dividends are recognised in the financial statements in the year
in which they are approved.
Contingent liabilities and legal proceedings
Provision is made for the anticipated settlement costs of legal or
other disputes against the group where it is considered to be
probable that a liability exists and a reliable estimate can be
made of the likely outcome. Where it is possible that a
settlement may be reached or it is not possible to make a
reliable estimate of the estimated financial effect, appropriate
disclosure is made but no provision created.
Critical accounting judgements and estimates
Judgement is necessary in assessing the likelihood that a claim
will succeed, or a liability will arise, and an estimate to quantify
the possible range of any settlement. Due to the inherent
uncertainty in this evaluation process, actual losses may be
different from the liability originally estimated. The group may
be involved in legal proceedings in respect of which it is not
possible to make a reliable estimate of any expected
settlement. In such cases, appropriate disclosure is provided but
no provision is made and no contingent liability is quantified.