Tesco 2002 Annual Report Download - page 23

TESCO PLC 21
DEFERRED TAX
Deferred tax is recognised in respect of all timing differences that
have originated but not reversed by the balance sheet date and
which could give rise to an obligation to pay more or less taxation in
the future. An asset is not recognised to the extent that the
likelihood of future economic benefit is not certain. Deferred tax is
measured on a non-discounted basis at the tax rates that are
expected to apply in the periods in which timing differences reverse,
based on tax rates and laws substantively enacted at the balance
sheet date.
PENSIONS
The expected cost of pensions in respect of the Group’s defined
benefit pension schemes is charged to the profit and loss account
over the working lifetimes of employees in the schemes. Actuarial
surpluses and deficits are spread over the expected remaining
working lifetimes of employees.
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
The cost of providing other post-retirement benefits, which comprise
private healthcare, is charged to the profit and loss account so as to
spread the cost over the service lives of relevant employees in
accordance with the advice of qualified actuaries. Actuarial surpluses
and deficits are spread over the expected remaining working
lifetimes of relevant employees.
FOREIGN CURRENCIES
Assets and liabilities in foreign currencies are translated into sterling
at the financial year end exchange rates. Profits and losses of
overseas subsidiaries are translated into sterling at average rates of
exchange. Gains and losses arising on the translation of the net assets
of overseas subsidiaries, less exchange differences arising on matched
foreign currency borrowings, are taken to reserves and disclosed in
the statement of total recognised gains and losses. Gains and losses
on instruments used for hedging are recognised in the profit and loss
account when the exposure that is being hedged is itself recognised.
FINANCIAL INSTRUMENTS
Derivative instruments utilised by the Group are interest rate swaps
and caps, forward start interest rate swaps, cross currency swaps,
forward rate agreements and forward exchange contracts and
options. Termination payments made or received in respect of
derivatives are spread over the life of the underlying exposure in
cases where the underlying exposure continues to exist. Where the
underlying exposure ceases to exist, any termination payments are
taken to the profit and loss account.
Interest differentials on derivative instruments are recognised by
adjusting net interest payable. Premia or discounts on derivative
instruments are amortised over the shorter of the life of the
instrument or the underlying exposure.
Currency swap agreements and forward exchange contracts are
valued at closing rates of exchange. Resulting gains or losses are
offset against foreign exchange gains or losses on the related
borrowings or, where the instrument is used to hedge a committed
future transaction, are deferred until the transaction occurs or is
extinguished.