Tesco 2009 Annual Report Download - page 76

74 FINANCIAL STATEMENTS
Tesco PLC Annual Report and Financial Statements 2009
Goodwill arising on consolidation represents the excess of the cost of an
acquisition over the fair value of the Group’s share of the net assets/net
liabilities of the acquired subsidiary, joint venture or associate at the date
of acquisition. If the cost of acquisition is less than the fair value of the
Group’s share of the net assets/net liabilities of the acquired entity
(i.e. a discount on acquisition) then the difference is credited to the
Group Income Statement in the period of acquisition.
At the acquisition date of a subsidiary, goodwill acquired is recognised as
an asset and is allocated to each of the cash-generating units expected to
benefit from the business combination’s synergies and to the lowest level
at which management monitors the goodwill. Goodwill arising on the
acquisition of joint ventures and associates is included within the carrying
value of the investment.
Goodwill is reviewed for impairment at least annually by assessing the
recoverable amount of each cash-generating unit to which the goodwill
relates. The recoverable amount is the higher of fair value less costs to sell,
and value in use. When the recoverable amount of the cash-generating
unit is less than the carrying amount, an impairment loss is recognised.
Any impairment is recognised immediately in the Group Income Statement
and is not subsequently reversed.
On disposal of a subsidiary, joint venture or associate, the attributable
amount of goodwill is included in the determination of the profit or loss
on disposal.
Goodwill arising on acquisitions before 29 February 2004 (the date of
transition to IFRS) was retained at the previous UK GAAP amounts subject
to being tested for impairment at that date. Goodwill written off to reserves
under UK GAAP prior to 1998 has not been restated and will not be
included in determining any subsequent profit or loss on disposal.
Intangible assets
Acquired intangible assets
Acquired intangible assets, such as software, pharmacy licences, customer
relationships, contracts and brands, are measured initially at cost and are
amortised on a straight-line basis over their estimated useful lives, at
2%-100% of cost per annum.
Internally-generated intangible assets – Research and
development expenditure
Research costs are expensed as incurred.
Development expenditure incurred on an individual project is carried
forward only if all the criteria set out in IAS 38 ‘Intangible Assets’ are
met, namely:
an asset is created that can be identified (such as software or new 
processes);
it is probable that the asset created will generate future economic 
benefits; and
the development cost of the asset can be measured reliably.
Following the initial recognition of development expenditure, the cost is
amortised over the project’s estimated useful life, usually at 14%-25%
of cost per annum.
Impairment of tangible and intangible assets excluding goodwill
At each Balance Sheet date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If such indication
exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the asset does
not generate cash flows that are independent from other assets, the Group
estimates the recoverable amount of the cash-generating unit to which the
asset belongs.
The recoverable amount is the higher of fair value less costs to sell, and
value in use. If the recoverable amount of an asset (or cash-generating
unit) is estimated to be less than its carrying amount, the carrying amount
of the asset (or cash-generating unit) is reduced to its recoverable amount.
An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount
of the asset (or cash-generating unit) is increased to the revised estimate
of the recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been determined if
no impairment loss had been recognised for the asset (or cash-generating
unit) in prior years. A reversal of an impairment loss is recognised as
income immediately.
Other investments
Other investments in the Group Balance Sheet comprise equity
investments and available-for-sale financial assets. Refer to the financial
instruments accounting policy for further detail.
Equity investments are recognised at amortised cost and available-for-sale
financial assets are recognised at fair value.
Inventories
Inventories comprise goods held for resale and properties held for, or in
the course of, development and are valued at the lower of cost and fair
value less costs to sell using the weighted average cost basis.
Short-term investments
Short-term investments in the Group Balance Sheet consist of deposits
with money market funds.
Cash and cash equivalents
Cash and cash equivalents in the Group Balance Sheet consist of cash at
bank, in hand and demand deposits with banks together with short-term
deposits with an original maturity of three months or less.
Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale
if their carrying amount will be recovered through sale rather than
continuing use. This condition is regarded as met only when the sale is
highly probable and the asset (or disposal group) is available for immediate
sale in its present condition. Management must be committed to the sale
and it should be expected to be completed within one year from the date
of classification.
Non-current assets (and disposal groups) classified as held for sale are
measured at the lower of carrying amount and fair value less costs to sell.
Pensions and similar obligations
The Group accounts for pensions and other post-employment benefits
(principally private healthcare) under IAS 19 ‘Employee Benefits’.
In respect of defined benefit plans, obligations are measured at discounted
present value (using the projected unit credit method) whilst plan assets
are recorded at fair value. The operating and financing costs of such plans
are recognised separately in the Group Income Statement; service costs
are spread systematically over the expected service lives of employees and
financing costs are recognised in the periods in which they arise. Actuarial
gains and losses are recognised immediately in the Group Statement of
Recognised Income and Expense.
Payments to defined contribution schemes are recognised as an expense
as they fall due.
Notes to the Group financial statements continued
Note 1 Accounting policies continued