Tesco 2006 Annual Report Download - page 107

105Tesco plc
Notes to the Parent company financial statements
Note 1 Accounting policies
Basis of preparation of financial statements
These financial statements have been prepared under UK
GAAP using the historical cost convention modified for the
revaluation of certain financial instruments and in accordance
with applicable accounting standards and the Companies
Act 1985.
A summary of the Company’s significant accounting policies
are set out below.
Exemptions
The Directors have taken advantage of the exemption
available under section 230 of the Companies Act 1985 and
notpresented a Profit and loss account for 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 statements’. The cash flows of the Company are
included in the Tesco PLC 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 PLC Group.
Changes in accounting policies
The Company has adopted the following standards in these
financial statements:
• FRS 17 ‘Retirement Benefits’ – full requirements
• FRS 20 ‘Share-based payment’
• FRS 21 ‘Events after the balance sheet date’
• FRS 25 ‘Financial Instruments: Disclosure and presentation’
• FRS 26 ‘Financial Instruments: Measurement’
• FRS 28 ‘Corresponding amounts’
The adoption of each of these standards represents a change
in accounting policy and the comparative figures have been
restated accordingly, except where the exemption to restate
comparatives has been taken for FRS 25 and FRS 26, which
havebeen adopted from 27 February 2005. Details of the
effect of the prior year adjustments are given in note 15.
Money market deposits
Money market deposits are stated at 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 in foreign currencies are translated into
Pounds Sterling at the financial year end exchange rates.
Share-based payments
Employees of the Company receive part of their remuneration
in the form of share-based payment transactions, whereby
employees render services in exchange for shares or rights over
shares (equity-settled transactions).
The fair value of employee share option plans is calculated at
the grant date using the Black-Scholes model. In accordance
with FRS 20 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 a subsidiary awards options over the shares of the
Company, 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 a party
to the contractual provisions of the instrument.
Debtors
Debtors are not interest-bearing and are stated at their
nominal value, reduced by appropriate allowances for
estimated irrecoverable amounts.
Current asset investments
Investments are classified as either held-for-trading or available-
for-sale, and are measured at subsequent reporting dates at fair
value. Gains and losses arising from changes in fair value for
available-for-sale investments are recognised directly in equity,
until the security is disposed of or is determined to be
impaired; at which time the cumulative gain or loss previously
recognised in equity is included in the net profit or loss for
the period.
Financial liabilities and equity
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.
Interest-bearing borrowings
Interest-bearing bank loans and overdrafts are initially recorded
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
differencebetween cost and redemption value being recognised
in the Profit and loss account over the period of the borrowings
on an effective interest basis.
Equity instruments
Equity instruments issued by the Company are recorded at the
value of the amount received, net of direct issue costs.
Derivative financial instruments and hedge accounting –
Accounting policy for year ended 25 February 2006
The Company uses derivative financial instruments to hedge
its exposure to foreign exchange and interest rate risks arising
from operating, financing and investment activities. The
Company does not hold or issue derivative financial
instruments for trading purposes, however if derivatives do not
qualify for hedge accounting they are accounted for as such.