Tesco 2005 Annual Report Download - page 41

Taxation The amount included in the profit 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
profits 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 defined benefit pension schemes is charged to the
profit and loss account over the working lifetimes of employees
in the schemes. Actuarial surpluses and deficits are spread over
the expected remaining working lifetimes of employees. Note
27 in the financial statements provides further detail in respect
of pension costs and commitments.
Post-retirement benefits other than pensions The cost
of providing other post-retirement benefits, which comprise
private healthcare, is charged to the profit and loss account
so as to spread the cost over the service lives of relevant
employees in accordance with the advice of qualified actuaries.
Actuarial surpluses and deficits 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 financial year end exchange
rates. Profits 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 profit 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, floors 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 profit and loss account.
Interest differentials on derivative instruments are recognised
by adjusting net interest payable. Premia or discount on
derivative instruments is 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.
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