Tesco 2012 Annual Report Download - page 99

STRATEGIC REVIEW PERFORMANCE REVIEW GOVERNANCE FINANCIAL STATEMENTS OVERVIEW
Note 1 Accounting policies
Notes to the Group financial statements
General information
Tesco PLC (‘the Company’) is a public limited company incorporated
anddomiciled in the United Kingdom under the Companies Act 2006
(Registration number 445790). The address of the registered office is
Tesco House, Delamare Road, Cheshunt, Hertfordshire, EN8 9SL, UK.
The financial year represents the 52 weeks ended 25 February 2012 (prior
financial year 52 weeks ended 26 February 2011). For the UK, the Republic
of Ireland and the US, the results are for the 52 weeks ended 25 February
2012 (prior financial year 52 weeks ended 26 February 2011). For all other
operations, the results are for the calendar year ended 29 February 2012
(year ended 28 February 2011).
The main activities of the Company and its subsidiaries (together, ‘the
Group’) are those of retailing and retail banking.
Basis of preparation
The consolidated Group financial statements have been prepared in
accordance with International Financial Reporting Standards (‘IFRS’)
andIFRS Interpretations Committee (‘IFRIC’) interpretations as endorsed
by the European Union, and those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The consolidated Group
financial statements are presented in Pounds Sterling, generally rounded
to the nearest million. They are prepared on the historical cost basis, except
for certain financial instruments, share-based payments, customer loyalty
programmes and pensions that have been measured at fair value.
Discontinued operations
During the financial year, the Board approved a plan to dispose of its
operations in Japan which is consistent with the Group’s long-term
strategic priority to drive growth and improve returns by focusing on its
larger businesses in the region. In accordance with IFRS 5 ‘Non-current
Assets Held for Sale and Discontinued Operations’, the net results for the
year are presented within discontinued operations in the Group Income
Statement (for which the comparatives have been reclassified) and the
assets and liabilities of the business are presented separately in the
GroupBalance Sheet. See Note 7 for further details.
Cash and cash equivalents reclassification
During the financial year, the Group identified certain assets held by
Tesco Bank that had a maturity profile of less than three months that
would be more appropriately classified as cash and cash equivalents in
accordance with IAS 7 ‘Statement of Cash Flows’. The assets identified
comprised loans and advances to banks, certificates of deposit (included
within other investments) and other receivables. The amounts relating to
these balances have accordingly been reclassified in the Group Balance
Sheet and the Group Cash Flow Statement as cash and cash equivalents.
The impact of these reclassifications, with no change to net assets, is to:
 increase cash and cash equivalents by £558m and £283m at 26 February
2011 and 27 February 2010 respectively;
 decrease other investments by £170m and £165m at 26 February 2011
and 27 February 2010 respectively, such that other investments were
£698m at 27 February 2010;
 decrease loans and advances to banks by £404m and £144m at
26February 2011 and 27 February 2010 respectively, such that loans
and advances to banks were £nil at 27 February 2010;
 increase trade and other receivables by £16m and £26m at 26 February
2011 and 27 February 2010 respectively, such that trade and other
receivables were £1,914m at 27 February 2010; and
 increase cash flows from operating activities by £270m and increase
netcash used in investing activities by £5m for the 52 weeks ended
26February 2011.
The accounting policies set out below have been applied consistently
to allperiods presented in these consolidated financial statements.
Basis of consolidation
The consolidated Group financial statements consist of the financial
statements of the ultimate Parent Company (‘Tesco PLC’), all entities
controlled by the Company (its subsidiaries) and the Group’s share
ofitsinterests in joint ventures and associates.
Subsidiaries
The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date
that control ceases.
Intragroup balances and any unrealised gains and losses or income and
expenses arising from intragroup transactions are eliminated in preparing
the consolidated financial statements.
Joint ventures and associates
The Group’s share of the results of joint ventures and associates is included
in the Group Income Statement using the equity method of accounting.
Investments in joint ventures and associates are carried in the Group Balance
Sheet at cost plus post-acquisition changes in the Group’s share of the net
assets of the entity, less any impairment in value. The carrying values of
investments in joint ventures and associates include acquired goodwill.
If the Group’s share of losses in a joint venture or associate equals or
exceeds its investment in the joint venture or associate, the Group does
not recognise further losses, unless it has incurred obligations to do so
ormade payments on behalf of the joint venture or associate.
Unrealised gains arising from transactions with joint ventures and
associates are eliminated to the extent of the Group’s interest in the entity.
Use of assumptions and estimates
The preparation of the consolidated Group financial statements requires
management to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are
based on historical experience and various other factors that are believed
to be reasonable under the circumstances. Actual results may differ from
these estimates. The estimates and underlying assumptions are reviewed
on an ongoing basis.
Critical estimates and assumptions that are applied in the preparation
ofthe consolidated financial statements include:
Depreciation and amortisation
The Group exercises judgement to determine useful lives and residual
values of intangibles, property, plant and equipment and investment
property. The assets are depreciated down to their residual values over
their estimated useful lives.
Impairment
i) Impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment.
The recoverable amount of the cash-generating units has been
determined based on value in use calculations. These calculations require
the use of estimates as set out in Note 10.
ii) Impairment of assets
The Group has determined each store as a separate cash-generating unit
for impairment testing. Where there are indicators for impairment, the
Group performs an impairment test.
Recoverable amounts for cash-generating units are based on the higher
ofvalue in use and fair value less costs to sell. Value in use is calculated
from cash flow projections for five years using data from the Group’s
latestinternal forecasts. These calculations require the use of estimates
asset out in Note 11.
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