Tesco 2013 Annual Report Download - page 86

82 Tesco PLC Annual Report and Financial Statements 2013
Notes to the Group financial statements
Provisions
Provisions are measured at the present value of the expenditures expected
to be required to settle the obligation using a pre-tax rate that reflects
current market assessments of the time value of money and the risks
specific to the obligation. The increase in the provision due to passage
of time is recognised as interest expense.
Provisions for onerous leases are recognised when the Group believes
that the unavoidable costs of meeting the lease obligations exceed the
economic benefits expected to be received under the lease. Provisions
for dilapidation costs are recognised on a lease by lease basis.
Non-current assets held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as assets held for
sale when their carrying amount is to be recovered principally through
a sale transaction and a sale is considered highly probable. They are
stated at the lower of carrying amount and fair value less costs to sell.
Standards issued but not yet effective
As of the date of authorisation of these financial statements,
the following standards were in issue but not yet effective.
The Group has not applied these standards in the preparation
of the financial statements:
• IAS 1 (Amended) ‘Financial statement presentation’ regarding
other comprehensive income ‘Presentation of financial statements’
is effective from periods commencing on or after 1 July 2012. The
main change from this amendment is to require entities to group
items presented in ‘other comprehensive income’ (‘OCI’) on the
basis of whether they are potentially reclassifiable to the Group
Income Statement subsequently (reclassification adjustments). The
amendments do not address which items are presented in OCI.
• IAS 19 (Amended) ‘Employee benefits’ is effective from periods
commencing on or after 1 January 2013. It eliminates the corridor
approach and requires immediate recognition of all actuarial gains
and losses in other comprehensive income, immediate recognition
of all past service costs and the replacement of interest cost and
expected return on plan assets with a net interest amount that is
calculated by applying the discount rate to the net defined benefit
liability/asset. If this standard had been applied to the year ended
23 February 2013, it is estimated that interest income would have
been reduced by approximately £125m.
• IFRS 9 ‘Financial instruments’ is effective from periods commencing
on or after 1 January 2015. It is the first standard issued as part of
a wider project to replace IAS 39. It retains but simplifies the mixed
measurement model and establishes two primary measurement
categories for financial assets: i) amortised cost; and ii) fair value.
The basis of classification depends on the entity’s business model
and the contractual cash flow characteristics of the financial asset.
• IFRS 10 ‘Consolidated financial statements’ is effective from periods
commencing on or after 1 January 2014. It builds on existing
principles by identifying the concept of control as the determining
factor in whether an entity should be included within the consolidated
financial statements of the parent company. It also provides additional
guidance to assist in the determination of control where this is difficult
to assess.
• IFRS 11 ‘Joint arrangements’ is effective from periods commencing
onor after 1 January 2014. It is a more realistic reflection of joint
arrangements by focusing on the rights and obligations of the
arrangement rather than its legal form. There are now only two
typesofjoint arrangement: joint operations; and joint ventures.
• IFRS 12 ‘Disclosures of interests in other entities’ is effective from
periods commencing on or after 1 January 2014. It includes the
disclosure requirements for all forms of interests in other entities,
including joint arrangements, associates, special purpose vehicles
and other off balance sheet vehicles.
• IFRS 13 ‘Fair value measurement’ is effective from periods
commencing on or after 1 January 2013. It aims to improve
consistency and reduce complexity by providing precise definition
of fair value and single sourceof fair value measurement and
disclosure requirements for useacross IFRSs.
• IAS 27 (Amended) ‘Separate financial statements’ is effective from
periods commencing on or after 1 January 2014. It includes the
provisions on separate financial statements that are left after the
control provisions of IAS 27 have been included in the new IFRS 10.
• IAS 28 (Amended) ‘Associates and joint ventures’ is effective from
periods commencing on or after 1 January 2014. It includes the
requirements for joint ventures, as well as associates, to be equity
accounted following the issue of IFRS 11. This requirement will not
affect the Group because equity accounting is currently adopted
under the existing requirements of IAS 31.
• IFRS 7 (Amended) ‘Financial instruments: Disclosures’ and IAS 32
(Amended) ‘Financial instruments: Presentation’ are effective from
1 January 2013 and 2014 respectively. The IAS 32 amendment
clarifies some of the requirements for offsetting financial assets
and financial liabilities on the Group Balance Sheet while
the IFRS 7 amendment will require more extensive disclosures
than are required under IFRS.
• Annual Improvements 2011 is effective from periods commencing
on or after 1 January 2013. It addresses six issues in the 2009–2011
reporting cycle. It includes changes to IAS 1 (‘Financial statement
presentation’), IAS 16 (‘Property, plant and equipment’), IAS 32
(‘Financial instruments: presentation’) and IAS 34 (‘Interim
financial reporting’).
The impact on the Group’s financial statements of the future adoption
of these standards is still under review.
Use of non-GAAP profit measure – underlying profit before tax
The Directors believe that underlying profit before tax and underlying
diluted earnings per share measures provide additional useful
information for shareholders on underlying trends and performance.
These measures are used for performance analysis. Underlying profit
is not defined by IFRS and therefore may not be directly comparable
with other companies’ adjusted profit measures. It is not intended
to be a substitute for, or superior to IFRS measurements of profit.
The adjustments made to reported profit before tax are:
• IAS 32 and IAS 39 ‘Financial Instruments’ – fair value
remeasurements. Under IAS 32 and IAS 39, the Group applies hedge
accounting to its various hedge relationships when allowed under
IAS 39 and when practical to do so. Sometimes the Group is unable
to apply hedge accounting to the arrangements but continues to
enter into these arrangements as they provide certainty or active
management of the exchange rates and interest rates applicable to
the Group. The Group believes these arrangements remain effective
and economically and commercially viable hedges despite the inability
to apply hedge accounting. Where hedge accounting is not applied
to certain hedging arrangements, the reported results reflect the
movement in fair value of related derivatives due to changes in foreign
exchange and interest rates. In addition, at each year end, any gain
or loss accruing on open contracts is recognised in the Group Income
Statement for the financial year, regardless of the expected outcome
of the hedging contract on termination. This may mean that the
Group Income Statement charge is highly volatile, whilst the resulting
cash flows may not be as volatile. The underlying profit measure
removes this volatility to help better identify underlying performance
of the Group.
Note 1 Accounting policies continued