Tesco 2014 Annual Report Download - page 126

Note 1 Accounting policies
Basis of preparation
The Parent Company financial statements have been prepared on a going
concern basis using the historical cost convention modified for the
revaluation of certain financial instruments and in accordance with generally
accepted accounting principles (‘UK GAAP’) and the Companies Act 2006.
The financial year represents the 52 weeks to 22 February 2014
(prior financial year 52 weeks to 23 February 2013).
A summary of the Company’s significant accounting policies is set outbelow.
Exemptions
The Directors have taken advantage of the exemption available under
Section 408 of the Companies Act 2006 and not presented a Profit
and Loss Account for the Company alone.
The Company has taken advantage of the FRS 29 ‘Financial Instruments:
Disclosures’ exemption and not provided derivative financial instrument
disclosures of the Company alone.
The Company has also taken advantage of the exemption from preparing
a Cash Flow Statement under the terms of FRS 1 ‘Cash Flow Statement’.
The cash flows of the Company are included in the Tesco Group
financial statements.
The Company is also exempt under the terms of FRS 8 ‘Related Parties’
from disclosing related party transactions with entities that are part of the
Tesco Group.
Short-term investments
Short-term investments relate to money market deposits which are
recognised initially at fair value, and subsequently at amortised cost.
Allincome from these investments is included in the Profit and Loss
Account as interest receivable and similar income.
Investments in subsidiaries and joint ventures
Investments in subsidiaries and joint ventures are stated at cost less,
where appropriate, provisions for impairment.
Foreign currencies
Assets and liabilities that are denominated in foreign currencies are
translated into Pounds Sterling at the exchange rates prevailing at the
balance sheet date of the financial year.
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
Profit and Loss Account over the vesting period. The value of the charge is
adjusted to reflect expected and actual levels of vesting.
Where the Company awards shares or options to employees of subsidiary
entities, this is treated as a capital contribution.
Financial instruments
Financial assets and financial liabilities are recognised on the Company’s
Balance Sheet when the Company becomes party to the contractual
provisions of the instrument.
Debtors
Debtors are recognised initially at fair value, and subsequently at amortised
cost using the effective interest rate method, less provision for impairment.
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to
thesubstance of the contractual arrangements entered into. An equity
instrument is any contract that gives a residual interest in the assets ofthe
Company after deducting all of its liabilities. Equity instruments issued by
the Company are recorded as the proceeds received, net ofdirect issue costs.
Borrowings
Interest-bearing bank loans and overdrafts are initially recognised at
the value of the amount received, net of attributable transaction costs.
Subsequent to initial recognition, interest-bearing borrowings are stated
at amortised cost with any differences between cost and redemption value
being recognised in the Company Profit and Loss Account over theperiod
of the borrowings on an effective interest basis.
Other creditors
Other creditors are recognised initially at fair value, and subsequently
atamortised cost using the effective interest rate method.
Derivative financial instruments and hedge accounting
The Company uses derivative financial instruments to hedge its exposure
to foreign exchange and interest rate risks arising from operating, financing
and investing activities. The Company does not hold or issue derivative
financial instruments for trading purposes.
Derivative financial instruments are recognised and stated at fair value.
Where derivatives do not qualify for hedge accounting, any gains or losses
on remeasurement are immediately recognised in the Company Profit and
Loss Account. Where derivatives qualify for hedge accounting, recognition
of any resultant gain or loss depends on the nature of the hedge relationship
and the items being hedged.
In order to qualify for hedge accounting, the Company is required to
document from inception, the relationship between the item being hedged
and the hedging instrument. The Company is also required to document and
demonstrate an assessment of the relationship between the hedged item
and the hedging instrument, which shows that the hedge will be highly
effective on an on-going basis. This effectiveness testing is performed at
each reporting date to ensure that the hedge remains highly effective.
Derivative financial instruments with maturity dates of more than one
year from the balance sheet date are disclosed as falling due after more
than one year.
Other information
Governance Financial statementsStrategic report
Tesco PLC Annual Report and Financial Statements 2014 123
Notes to the Parent Company financial statements