Tesco 2004 Annual Report Download - page 33

TESCO PLC 31
TAXATION The amount included in the proÞt and loss account
is based on pre-tax reported income and is calculated at current
local tax rates, taking into account timing differences and the
likelihood of realisation of deferred tax assets and liabilities.
DEFERRED TAX Deferred tax is recognised in respect of all timing
differences that have originated but not reversed by the balance
sheet date and which could give rise to an obligation to pay
more or less taxation in the future. Deferred tax assets are
recognised to the extent that they are regarded as recoverable.
They are regarded as recoverable to the extent that on the
basis of all available evidence, it is regarded as more likely than
not that there will be suitable taxable proÞts from which the
future reversal of the underlying timing differences can be
deducted. Deferred tax is measured on a non-discounted basis
at the tax rates that are expected to apply in the periods in
which timing differences reverse, based on tax rates and laws
substantively enacted at the balance sheet date.
PENSIONS The expected cost of pensions in respect of the
Groups deÞned beneÞt pension schemes is charged to the
proÞt and loss account over the working lifetimes of employees
in the schemes. Actuarial surpluses and deÞcits are spread over
the expected remaining working lifetimes of employees. Note
27 in the Þnancial statements provides further detail in respect
of pension costs and commitments.
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS The cost of
providing other post-retirement beneÞts, which comprise private
healthcare, is charged to the proÞt and loss account so as to
spread the cost over the service lives of relevant employees in
accordance with the advice of qualiÞed actuaries. Actuarial
surpluses and deÞcits are spread over the expected remaining
working lifetimes of relevant employees.
FOREIGN CURRENCIES Assets and liabilities in foreign currencies
are translated into sterling at the Þnancial year end exchange
rates. ProÞts and losses of overseas subsidiaries are translated
into sterling at average rates of exchange. Gains and losses
arising on the translation of the net assets of overseas
subsidiaries, less exchange differences arising on matched foreign
currency borrowings, are taken to reserves and disclosed in the
statement of total recognised gains and losses. Gains and losses
on instruments used for hedging are recognised in the proÞt
and loss account when the exposure that is being hedged is
itself recognised.
FINANCIAL INSTRUMENTS Derivative instruments utilised by the
Group are interest rate swaps, ßoors and caps, forward start
interest rate swaps, cross currency swaps, forward rate
agreements and forward exchange contracts and options.
Termination payments made or received in respect of derivatives
are spread over the life of the underlying exposure in cases
where the underlying exposure continues to exist. Where the
underlying exposure ceases to exist, any termination payments
are taken to the proÞt and loss account.
Interest differentials on derivative instruments are recognised by
adjusting net interest payable. Premia or discounts on derivative
instruments are amortised over the shorter of the life of the
instrument or the underlying exposure.
Currency swap agreements are valued at closing rates of
exchange. Forward exchange contracts are valued at discounted
closing forward rates of exchange. Resulting gains or losses are
offset against foreign exchange gains or losses on the related
borrowings or, where the instrument is used to hedge a
committed future transaction, are deferred until the transaction
occurs or is extinguished.