Tesco 2013 Annual Report Download - page 84

80 Tesco PLC Annual Report and Financial Statements 2013
Notes to the Group financial statements
The Group as a lessor
Amounts due from lessees under finance leases are recorded as
receivables at the amount of the Group’s net investment in the leases.
Finance lease income is allocated to accounting periods so as to reflect
a constant periodic rate of return on the Group’s net investment in the
lease. Rental income from operating leases is recognised on a straight-
line basis over the term of the lease.
The Group as a lessee
Assets held under finance leases are recognised as assets of the Group
at their fair value or, if lower, at the present value of the minimum
lease payments, each determined at the inception of the lease. The
corresponding liability is included in the Group Balance Sheet as a
finance lease obligation. Lease payments are apportioned between
finance charges and a reduction of the lease obligations so as to achieve
a constant rate of interest on the remaining balance of the liability.
Finance charges are charged to the Group Income Statement. Rentals
payable under operating leases are charged to the Group Income
Statement on a straight-line basis over the term of the lease.
Sale and leaseback
A sale and leaseback transaction is one where the Group sells an asset
and immediately reacquires the use of the asset by entering into a lease
with the buyer.
The accounting treatment of the sale and leaseback depends upon
the substance of the transaction (by applying the lease classification
principles described above) and whether or not the sale was made at
the asset’s fairvalue.
For sale and finance leasebacks, any profit from the sale is deferred
and amortised over the lease term. For sale and operating leasebacks,
generally the assets are sold at fair value, and accordingly the profit or loss
from the sale is recognised immediately in the Group Income Statement.
Post-employment and similar obligations
For 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 Comprehensive Income.
Payments to defined contribution schemes are recognised as an
expense as they fall due.
Share-based payments
The fair value of employee share option plans is calculated at the grant
date using the Black-Scholes model. The resulting cost is charged to
the Group Income Statement over the vesting period. The value of the
charge is adjusted to reflect expected and actual levels of vesting.
Taxation
The tax expense included in the Group Income Statement consists
of current and deferred tax.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantively enacted by the
balance sheet date. Tax expense is recognised in the Group Income
Statement except to the extent that it relates to items recognised in the
Group Statement of Comprehensive Income or directly in the Group
Statement of Changes in Equity, in which case it is recognised in the
Group Statement of Comprehensive Income or directly in the Group
Statement of Changes in Equity, respectively.
Deferred tax is provided using the balance sheet liability method,
providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes.
Deferred tax is calculated at the tax rates that have been enacted or
substantively enacted by the balance sheet date. Deferred tax is charged
orcredited in the Group Income Statement, except when it relates to
items charged or credited directly to equity or other comprehensive
income, inwhich case the deferred tax is also recognised in equity, or
other comprehensive income, respectively.
Deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the assets
tobe recovered.
Deferred tax assets and liabilities are offset against each other when
thereis a legally enforceable right to set-off current taxation assets
againstcurrent taxation liabilities and it is the intention to settle these
onanet basis.
Foreign currencies
Transactions in foreign currencies are translated at the exchange rate on
the date of the transaction. At each balance sheet date, monetary assets
and liabilities that are denominated in foreign currencies are retranslated
atthe rates prevailing on the balance sheet date. All differences are
taken to the Group Income Statement.
The assets and liabilities of overseas subsidiaries denominated in
foreign currencies are translated into Pound Sterling at exchange rates
prevailing at the date of the Group Balance Sheet; profits and losses are
translated ataverage exchange rates for the relevant accounting periods.
Exchange differences arising are recognised in the Group Statement of
Comprehensive Income and are included in the Group’s translation
reserve. Such translation differences are recognised as income or
expensesin the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate.
Financial instruments
Financial assets and financial liabilities are recognised on the Group
Balance Sheet when the Group becomes a party to the contractual
provisions of the instrument.
Trade receivables
Trade receivables are non interest-bearing and are recognised initially
at fair value, and subsequently at amortised cost using the effective
interest rate method, less provision for impairment.
Investments
Investments are recognised at trade date. Investments are classified as
either held for trading or available-for-sale, and are recognised at fair
value. For available-for-sale investments, gains and losses arising from
changes in fair value are recognised directly in the other comprehensive
income, until the security is disposed of or is determined to be impaired,
at which time the cumulative gain or loss previously recognised in other
comprehensive income is included in the Group Income Statement for
the period. Interest calculated using the effective interest rate method
is recognised in the Group Income Statement. Dividends on an available-
for-sale equity instrument are recognised in the Group Income
Statement when the entity’s right to receive payment is established.
Loans and advances to customers
Loans and advances to customers are not classified as held for trading
nor designated as fair value through profit and loss. Loans and advances
are initially recognised at fair value plus directly related transaction costs.
Subsequent to initial recognition, these assets are carried at amortised
cost using the effective interest method less any impairment losses.
Income from these financial assets is calculated on an effective yield
basis and is recognised in the Group Income Statement.
Note 1 Accounting policies continued