Tesco 2015 Annual Report Download - page 111

Note 11 Property, plant and equipment continued
Land and
buildings
£m
Other(a)
£m
Total
£m
Cost
At 23 February 2013 24,817 10,826 35,643
Foreign currency translation (1,131) (470) (1,601)
Additions(b) 1,492 955 2,447
Acquired through business combinations 9 6 15
Reclassification 1,875 27 1,902
Classified as held for sale (115) –(115)
Disposals (239) (133) (372)
Transfer to disposal group classified as held for sale (974) (360) (1,334)
At 22 February 2014 25,734 10, 851 36,585
Accumulated depreciation and impairment losses
At 23 February 2013 3,961 6,812 10,773
Foreign currency translation (220) (267) (487)
Depreciation charge 466 846 1,312
Impairment charge 814 52 866
Reversal of impairment charge (152) (2) (154)
Reclassification 282 1283
Classified as held for sale 2 1 3
Disposals (139) (117) (256)
Transfer to disposal group classified as held for sale (29) (216) (245)
At 22 February 2014 4,985 7,110 12,095
(a)(b)
See page 108 for footnotes.
During the prior year, it was concluded that the level of service provided to tenants of some malls operated by the Group were no longer considered
insignificant and as a result a number of malls with a net book value of £1,623m were reclassified from investment property to property, plant and equipment.
Impairment of property, plant and equipment
The Group has determined that for the purposes of impairment testing, each store is a cash-generating unit. Cash-generating units are tested for impairment
if there are indicators of impairment at the balance sheet date. Recoverable amounts for cash-generating units are based on the higher of value in use or fair
value less costs of disposal. The Group engaged external independent qualified valuers, where appropriate, to determine the fair value of the Group’s property.
Fair values are determined in regard to the market rent for the stores or for alternative uses with investment yields appropriate to reflect the physical
characteristics of the property and the location. In some cases, fair values include residual valuations where stores may be viable for redevelopment.
Value in use is generally calculated from cash flow projections for five years using data from the Group’s latest internal forecast, the results of which are reviewed
by the Board. The forecasts are extrapolated beyond five years based on estimated long-term growth rates of 2% to 5% (2014: 2% to 5%).
The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins. Management estimates
discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the cash-generating units.
Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market. The pre-tax discount rates used
to calculate value in use range from 9% to 12% (2014: 6% to 14%) depending on the specific conditions in which each store operates. On a post-tax basis,
the discount rates range from 7% to 10% (2014: 6% to 12%). These discount rates are derived from the Group’s post-tax weighted average cost of capital,
as adjusted for the specific risks relating to each geographical region.
An impairment charge of £4,292m (2014: £866m) has been recognised following a challenging economic climate and significant shifts in the retail industry
structure, resulting in a revision of forecast cash flows and property fair values. This charge relates to properties in the UK of £3,052m (2014: £87m), Europe
of £947m (2014: £740m) and Asia of £293m (2014: £39m). Of this charge, £3,291m (2014: £707m) related to trading stores has been classified as ‘Impairment
of PPE and onerous lease provisions included within cost of sales’ and £874m (2014: £nil) related to construction in progress and closed stores has been
classified as ‘Impairment of PPE and onerous lease provisions included within (losses)/profits arising on property-related items’ within non-GAAP measures
in the Group Income Statement. The remaining £127m charge (2014: £159m) has not been treated as one-off within non-GAAP measures.
An impairment reversal of £176m (2014: £154m) was recognised relating to properties in the UK of £133m (2014: £136m), Europe of £28m (2014: £10m) and Asia
of £15m (2014: £8m). Of this reversal, £25m (2014: £nil) has been classified as ‘Impairment of PPE and onerous lease provisions included within cost of sales’ and
£97m (2014: £98m) has been classified as ‘Impairment of PPE and onerous lease provisions included within (losses)/profits arising on property-related items’.
109Tesco PLC Annual Report and Financial Statements 2015
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