Tesco 2013 Annual Report Download - page 81

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Tesco PLC Annual Report and Financial Statements 2013
OVERVIEW BUSINESS REVIEW PERFORMANCE REVIEW GOVERNANCE FINANCIAL STATEMENTS
Notes to the Group financial statements
Note 1 Accounting policies
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 23 February 2013
(prior financial year 52 weeks ended 25 February 2012). For the UK, the
Republic of Ireland and the US, the results are for the 52 weeks ended
23 February 2013 (prior financial year 52 weeks ended 25 February
2012). For all other operations, the results are for the calendar year
ended 28 February 2013 (prior financial year ended 29 February 2012).
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 the US which is consistent with the Group’s long-term
strategic priority to drive growth and improve returns. The exit of the
Japan operations successfully completed on 1 January 2013. 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 businesses are presented separately in the Group
Balance Sheet. See Note 7 for further details.
Presentation change to cash flow statement
The Group has reported the investment in and proceeds from the sale
of short-term investments on a net basis for the year to reflect the
strategic management of such investments. The previous year’s gross
presentation (investment cash flow £1,972m and proceeds of £1,205m)
have been netted.
Presentation change to reserves
‘All other reserves’ in the Group Balance Sheet and Group Statement
of Changes in Equity includes several items of reserves including ‘Other
reserves’. In the previous year, ‘Other reserves’ was shown separately.
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.
iii) Impairment of loans and advances to customers and banks
The Group’s loan impairment provisions are established to recognise
incurred impairment losses in its portfolio of loans classified as loans
and receivables and carried at amortised cost. These calculations
require the use of estimates as set out in the accounting policy note
for Financial instruments.
Provisions
Provisions have been made for onerous leases, dilapidations,
restructuring, pensions, customer redress and claims. These provisions
are estimates and the actual costs and timing of future cash flows are
dependent on future events. The difference between expectations and
the actual future liability will be accounted for in the period when such
determination is made.
The Group has provisions for potential customer redress. In 2010/11,
the Financial Conduct Authority (‘FCA’) (previously the Financial Services
Authority) formally issued Policy Statement 10/12 (‘PS 10/12’), which
introduced new guidance in respect of Payment Protection Insurance